“If the pernicious drift toward fiscal instability is not arrested and is compounded by a protectionist reversal of globalization, the current account adjustment process could be quite painful for the United States and our trading partners," warned Alan Greenspan on Sunday, October 20 in a speech on the sidelines of the International Monetary Fund and World Bank meetings (read it here).
There is cause for great alarm in that sentence. Partly because of the incompetence of Bush/Cheney. Partly because of the tendency of both Democrats and Republicans to pander.
The “drift toward fiscal instability” is the deficit that Cheney/Bush has run up during its term of office. They are not conservatives. They are statists drawing power from the moral right. They favor a big government profiting special interests, they have run up huge deficits with tax breaks to large corporations and the wealthy while not paying for their war in progress.
The left is not much better. Their hatred of other people’s money makes them economically illiterate. If they get control of government on an agenda that includes opposition to liberal trade, Greenspan’s “protectionist reversal of globalization” could launch another worldwide recession.
At the end of which, China will be even more clearly the most significant economy in the world. If we start banning their T-Shirts, they may stop buying our debt. We need them more than they need us, and some of the recent market chaos may be related to China’s displeasure with our politics. We did not need to fete the Dali Lama.
The Law of Comparative Advantage proves that trade makes all nations wealthier. Protectionism extended the depression and made it worse. Democrats need to recognize that by trying to save in California jobs more cheaply done in Mexico, we hurt U.S. consumers, Mexican workers, and U.S. workers who can not make things for sale to a Mexico that can not pay for them.
Greenspan is giving us another warning. We are walking an edge. Only by more wisdom than we seem to possess, and a great amount of luck, shall we avoid a fall.
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Hilary Clinton seems to be abandoning her husband's Democratic Leadership Council adherence to free trade in favor of a more protectionist stance. This does not bode well. Of course, it's hard to know whether she actually believes in any particular economic doctrine — or anything else.
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