Monday, October 8, 2012

On Zombie Politics

The young possess a certain kind of wisdom: the wisdom that comes with youthful energy and idealism. The older possess a different kind of wisdom: the wisdom of experience. If you are old enough to remember the 1980 or 1984 presidential elections, and reflect on what has changed and what has not changed since then, you might conclude as I have that we live in an age of Zombie Politics. By that, I mean that certain issues which ought to have been resolved long ago still shamble across the political landscape, neither entirely dead nor entirely alive.
The Swing Voter (source)
In the 1980 presidential debate, Jimmy Carter accused Ronald Reagan of conspiring to cut the Medicare budget. Reagan denied it, but after the election that is exactly what he set out to do. It’s no different today. Candidates will praise Medicare before the election, and attempt to bury it after the election. During the debate, Reagan swore not to cut Social Security saying, “I will never stand for a reduction in … benefits (source).” He lived up to his promise: he didn’t exactly reduce Social Security benefits, but he did decide to tax the benefits. One could make the case that taxing a benefit is, in essence, reducing the benefit. And it is worth noting that this policy had the support of Democratic Party leader Tip O’Neill (source).  
During the 1988 election, the economy was the top concern among voters, followed by the federal budget deficit (source). During the presidential election of 1992, unemployment and the economy were the most important issues in the minds of American voters (source). Thus, from 1988 onward, both the Democratic Party and the Republican Party had opportunities to address the economy, jobs, and the budget deficit, but have failed to arrive at a solution that is satisfactory to the American people.
So, clearly, not much has changed. The Clinton years did usher in lower unemployment and a budget surplus, but the facts tell us that Mr. Clinton was not responsible for these occurrences (source, source). Instead, it was America’s manufacturing sector which, for a short time, boomed as a result of the success of American-made high technology goods in the global marketplace.
Every four years, promises are made to the American people by Republicans and Democrats, and these promises are not kept. Americans are made to feel alarmed about cherished programs like Medicare and Social Security, and once alarmed, they will rush into the embrace of the candidate who is better able to reassure them with lies. It is madness to continue supporting either the Democratic Party or the Republican Party. As Albert Einstein defined it, madness is: “doing the same thing over and over again and expecting different results.”
The Will of the American People Defeated
The 1984 election, for all its tiresome resemblances to elections before and since, was unique in one respect. There was a national dialog concerning international trade, and there was apparently some public awareness of the fact that the national debt and trade policy are linked. “The … campaign revolved mostly around the issues of deficit and tariff barriers … Democrats attacked the Republicans for their proposed budget deficit. The Democrats called for more tariff protection (source).” By the time that the North American Free Trade Act (NAFTA) came to a vote in 1993, President Bill Clinton was prepared to support it. What happened between 1984 and 1993? It is chilling in retrospect to note that many people understood what the consequences of NAFTA were going to be. Ross Perot famously predicted an “enormous sucking sound” made as jobs are drawn out of the United States and into Mexico. Among Democrats, Dick Gephardt led opposition to NAFTA. According to Slate magazine,
In 1993, Gephardt, who was then the second-ranking Democrat in the House, led the opposition [to NAFTA] … Gephardt said in July 2003, “I'm the one who led the fight against NAFTA, and I did it because I believed that that trade treaty was not going to help the United States, was not going to help Mexico, was not going to help anybody in the world, because it is the beginning of a race to the bottom. And that is exactly what has gone on (source).”
Has NAFTA inaugurated a ‘race to the bottom’ that harms Americans? The impact of NAFTA on American jobs has almost certainly been negative (see chart below).
Now, in the grand scheme of things, a net loss of just under a million jobs may not appear to be disastrous. But on the other hand, as I write this in October of 2012, Democrats are exceedingly happy to report that, nationwide, there are 114,000 more jobs than there were a few months ago.
The disadvantages of NAFTA are not measurable solely in terms of job losses. There is also the matter of the trade deficit. Since NAFTA went into effect in the 1990s, the U.S. trade deficit with Mexico has grown fairly steadily, as shown in the figure below, which I created using Census data (source). When businesses go overseas, they pay less in U.S. taxes, creating a loss of revenue and, in turn, a budget deficit. Unemployed Americans pay less in taxes than gainfully employed Americans. 
Trade Deficit with Mexico, 1994 - 2010
If NAFTA is bad for Americans, why did politicians vote for it? The answer is almost certainly Political Action Committees (PACs). Pro-NAFTA members of Congress received sizeable campaign contributions from PACs representing industries that would benefit financially from the trade agreement (source). In 1993,
A business coalition calling itself USA*NAFTA got thirty-five Fortune 500 companies to serve as “captains” in the lobbying drive for NAFTA. The captains contributed a total of $7.2 million in “soft money” to both parties in the most recent election cycle. Seven captains -- including representatives from DuPont, BankAmerica [now 'Bank of America'], United Technologies, American International Group, and AT&T -- were invited for coffee at the White House by President Clinton (source).
It is easy to suppose that PACs have always been a part of American politics, but that is a mistaken view. In 1974, corporations and unions were allowed to fund PACs for the first time. A 1976 Supreme Court case, Buckley vs. Valeo, removed some of the remaining limits on PAC spending. Between 1978 and 2006, the amount of campaign spending more than quadrupled

The chart to the left shows PAC spending from 1978 to 1988. The chart to the right shows PAC spending from 1994 to 2006. The gap reflects missing data (source).
The industries that benefit most from NAFTA are those which have a large return to scale: that is, as the volume of items produced increases, so does the profit margin. These are for the most part multinational companies. General Electric is one example. When Congress was deliberating on NAFTA, a GE representative assured Congress that sales to Mexico would create 10,000 U.S. jobs. Instead, GE laid off 2,108 American workers after the company shifted production to Mexico.
In the following years, multinational companies have enjoyed increasing profit margins and have found an increasing number of low-wage countries to support their efforts. They have also developed an unholy alliance with Wall Street financiers: as these companies enjoy ever-greater profits, stockholders enjoy larger dividends. Wall Street firms and companies such as GE shower members of Congress, the president, and anyone who cares to run against the president with cash. One can only assume that they expect a return on their investment.
After a debate with other candidates seeking the Democratic nomination, Obama promised that, “In my first week in office, I will notify Mexico and Canada that the US is withdrawing from NAFTA. We need a president who knows what the right thing is to do the first time, not in retrospect. And I think that we need to go forward to trade that’s based on workers’ rights, human rights and environmental quality principles. No one else on this stage could give a direct answer because they don’t intend to scrap NAFTA (source).” Obviously, this is a promise he did not keep. And, just as obviously, he understands that withdrawal from NAFTA is in the best interest of the American people.
Needless to say, Mitt Romney is also avid in his support of free trade. He has openly embraced a “territorial tax system” that will allow multinational companies to pay less in U.S. taxes, provided that they conduct their manufacturing overseas. President Obama hasn’t had much to say about this, presumably because his advisers are advocating an identical scheme (source). Biden had a few negative things to say about a territorial tax scheme, but evidently he is out of the loop.

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