A letter from a reader about Competition and U.S. economic thinking

March 23 , 2007

Norman Augustine ’57 *59 gets off to a good start in enumerating some but not all of the many discontents resulting from globalization (Perspective, March 7). He mentions the proliferation of high tech skills overseas and the effect of wage arbitrage in sending both white-collar jobs and capital investment overseas. Supply-side tax cuts these days produce investment only over there, not here. More important, he does not mention the collapse of the fundamental assumptions of our economic academy and business and government leaders.
• Our foreign policy seeks world peace through world prosperity and world prosperity
through world industrialization, but does not recognize that more industrialization equals
more carbon burn, which in turn produces catastrophic effects due to global warming.  Thus, instead of more prosperity, the world ends up with less, not to mention air
that no one can breathe.
• Because of wage arbitrage and the resulting “race to the bottom” toward the cheapest 
overseas sources, our trade deficits run three-quarters of a trillion dollars each year, and at this time, 47 percent of our Treasury paper and 30 percent of our corporate paper is in foreign hands. We are thus financing current consumption with debt paper that we will never be able to repay. Our federal financing policies mirror this folly, as we continue to pile up on- and off-balance-sheet debt that will come due on our children’s watch. 
• Because our critical supply chains now stretch around the world, our onetime arsenal
of democracy is now highly vulnerable.  National security has been compromised in order to maximize corporate profits; trickle-up economics is making our wealthy more so, while the prosperity and job security of our middle class erodes.
Education today is more expensive than ever, but no longer offers either job security or a
certainty of financial success. As Dr. Augustine points out, any job – no matter how skilled – can be exported to an equally trained worker who is paid far less. It is no coincidence that many of our most financially successful corporations are leaders in offshoring their workforces. A recent Barron’s article predicted that America in the future will be a “platform economy” in which we no longer make anything. This would not be a surprise, since already 40 percent of S&P 500 profits come from financial firms.  It seems many of us now make a living by lending money to the rest of us.    
Hamilton understood something that today’s economists do not: Dependency on foreign
manufacturers is merely another form of tyranny. Lincoln expanded on the idea when
an aide suggested he buy rails from England. Lincoln pointed out that if he were to buy
rails from England, we would have the rails and they would have the money. On the other
hand, if we were to make them here, we would have the rails and we would have the
money (and the jobs and capital investment). 
Perhaps instead of focusing on improving K-12, Dr. Augustine and his wise men should take a closer look at what is being taught by our economic academy. Clearly, it does not meet the test of traditional American pragmatism.
Chevy Chase, Md.

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