Commentary
Her new column addresses my current obsession, which is why, in the last 40 years, economic life in the United States has been transformed. A nation that was once known as the manufacturing capital of the world has lost its core. It has been replaced by something else. Vast numbers of the demographic who used to make things now do something else and no one is entirely sure what. Financialization rules the day.
We know where the manufacturing went: China, Vietnam (ironically), Mexico, and other places. The grand excuse has been “free trade” which has been seen as a higher state of being, leading to the grand goal of globalism and the end of the nation state as a functioning entity.
There are two ways to look at this reality. Some people say it is a disaster, and they cite the physical infrastructure all over New England and the Rust Belt and elsewhere. The whole of the country is littered with industrial corpses and broken lives as a result. The middle class was pillaged yet again with the pandemic response, leaving a widening wealth gap and an demoralized population.
As for the much ballyhooed new industries, we see the transformation ongoing, as wind turbines litter vast miles of Texas while oceans of oil flow underneath. In New York City, there are ongoing efforts to convert natural gas to electricity as powered by government-funded wind turbines emerge in Brooklyn, eyesores that no one wants and no one voted for. All this is forced by policy.
This is very serious and massively dramatic and huge in American history. It has produced a political movement in the United States that gains steam year after year, probably too late, but one can understand the drive. At least, we should be willing to understand the motivation if we are willing to look at facts.
On the other hand, there are people out there who say that we have not really lost anything of any real meaning. We’ve merely offshored annoying work and replaced it with cheap imports. We are living better as a result. Instead of working with the sweat of our brows to make stuff, we can now luxuriate in cubicles, thanks to our college credentials, and be happy as passive consumers of goods brought to us by crates from abroad in the same way that DoorDash and Instacart deliver our groceries.
These commentators—many are colleagues and friends—are like the dog in the meme who sits there with the house on fire and says: this is fine.
These people are making a huge error in banking the status of market liberalism on the present status quo. In fact, this is not the free market at work. It is the unfolding of one of the great financial and monetary Ponzi schemes in world history.
And please understand that some of my best intellectual colleagues defend all of this. Friends of mine, with whom I agree on most everything, are happy to proclaim all of this as wonderful evidence that everything is working, we are getting more prosperous, the world is opening up, and what we have here is nothing more than the kind of creative destruction a market-driven global order creates.
But what I don’t get is why people cannot write about this without at least admitting the reality. Instead, my favorite WSJ columnist claims that manufacturing jobs have merely geographically shifted from union-controlled high tax states to lower-priced labor states without lower taxes.
There is an element of that and nothing has one causal variable, but there is no question that as a percent of the workforce, manufacturing has fallen from 35 percent or so in 1950, to 8 percent or so today, which she does not mention. Why?
The first indication that the article is a bit off point is revealed in this claim: “Today’s refrigerators are far superior and cheaper to those four decades ago,” which everyone knows is completely untrue. Forty years would put us in 1984, when refrigerators were made in America and lasted for a lifetime. That was before new “green energy” regulations came along to limit how much refrigerators could consume of the household budget.
It was at this time that the ice makers, front water dispensers, and other gizmos became technologically fragile, and thereby subject to breakage. Then they became “smart,” which is to say controlled by apps that break, and they became strangely subject to being replaced with new machines made somewhere else and costing vastly more and lasting a fraction of the lifespan of older machines.
And so it has been with nearly everything in your house. The toilets don’t work and end up being replaced by high-tech devices that are hard to figure out and easy to malfunction. Lightbulbs have nowhere near the functionality and beauty of old-fashioned Edison bulbs, which are darn near illegal. There are restrictions on hot-water heaters, garbage disposals, washing machines, gas cans, mowers, and nearly everything else.
Speaking of which, our nice friend writes that her washing machine malfunctioned and she was reduced to hand washing her clothing, which reminded her of the glory of washing machines. And I agree: they were wonderful in the 1960s. But today, they simply cannot get clothing clean due to water restrictions and “green energy” regulations. It’s so bad that I personally will not use them. If only to get clothing clean, I do all my laundry by hand, which is weird, I know, but it is the reality of our times.
I’m pretty sure that Ms. Finley would grant these points in any other context but she is particularly sensitive on the subject of international trade. She is tremendously emphatic and dogmatic to proclaim all the results of globalism to be an unmitigated good.
Why do such commentators fail to admit that there is even a problem? It all comes down to the slogan: free trade. There is a huge tribe of intellectuals out there who believe we have it and don’t want it rolled back by the new nationalists and populists.
I understand the point. The deep history here is that free trade is the only real great achievement of 20th century liberals. Their triumphant efforts began in 1946 and continued through the end of the Cold War and onward to the 21st century. They are simply unwilling to recognize or admit any downside to their revolution, which was enacted with the best of intentions plus wonderful results, up to a point.
On a personal note, I’m completely sympathetic to this view. I’ve personally sat with tea week after week with the very diplomats who achieved this victory. They worked for the State Department, the Bank for International Settlements, the International Monetary Fund, and so on.
They are good people. It was the achievement of their lives to bring prosperity and peace to humanity through free trade. And they are brilliant, far-seeing diplomats and economists who rose above the rest.
What none of them wanted to admit was that a dramatic and huge change happened in 1971. That was when Richard Nixon ended the gold convertibility of the dollar. Five years later, Henry Kissinger negotiated a deal with Saudi Arabia to trade all oil in U.S. dollars, creating the petrodollar system. The result was not only the highest inflation in a hundred years. It also shattered the balance-of-payment system that had been the norm in international trade for the previous 500 years.
Through this “price-specie flow mechanism,” trade manages itself without government intervention. Implicit in Hume’s theory was that all world monies were ultimately rooted in specie: gold, silver, copper, and so on, and so all national currencies were nothing but different names of the same thing.
And so it was for many hundreds of years. This theory worked through the ages of Hume, Adam Smith, Frederic Bastiat, David Ricardo, and my friend Gottfried Haberler, who was the key influence behind the postwar General Agreement on Tariffs and Trade. Following 1946, tariffs fell and fell and the world became ever more prosperous.
What many of my friends have failed to realize is that there was a massive shift in the matrix starting in 1971. Nixon moved us from gold to a world of floating exchange rates. Because governments could no longer manage their finances, international trade became a matter of who could best game the system. That created a system of endless debts and endlessly unsettled international payments.
For the United States, that meant infinite money creation and the shipping abroad of U.S. debts held by foreign central banks, who used that debt/asset as collateral on which to inflate and fund the building of industrial machinery to directly target the U.S. manufacturing base.
Starting in the 1980s and following, it began to disappear and it has never stopped. The situation was made ever worse in the United States by hyper-regulation, the growth of profligate litigation, and an impossibly indebted government.
U.S. relations with China, for example, are deeply corrupted by this one point. Much of China’s post-Mao industrial development has not been as a result of “free markets” but rather directly funded by U.S. debt.
In an old-fashioned free market with sound money, this would never have happened. It took place entirely because the United States never allowed the price-specie flow mechanism to operate properly. That was due to U.S. monetary policy that reached absurdity with zero interest rates in 2008 and then became certifiably insane in 2020 and following.
In short, the United States chose to permit the destruction of its industrial base to retain its post-Cold War status as the world’s superpower. The consequence has been the loss of its manufacturing base along with the destruction of the American middle class.
Much more needs to be said but my main point is that there is no sense in denial here, much less defenses of this sorry situation.
The reason this subject is taboo is that admitting the truth seems to make the case for industrial policy and protectionism. But it simply does not. It makes the case for balancing the U.S. federal government budget, cutting 1-2 percent of the GDP in federal spending, stopping the eternal flow of debt that is serving as the base asset of other countries’ credit-funded industrial build-up, and emergency and far-reaching deregulation.
We really need to at least admit the truth. It achieves nothing to continue denying the whole problem even exists. What percent of the population should work in manufacturing and what should be produced? That’s for the market to say but we need a real market with sound money to find out. We have neither today. We need leaders who understand this, can explain it, and lead major and massive reforms to stop the madness.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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