U.S. Super Power Decline

The world is changing and it is hard to accept. We are declining in our superpower status and this is not totally bad. We helped bring it about. Our decline is less the result of becoming weak, but rather other countries becoming stronger economically as a result of our quest to help them be free.

Our country has always been a promoter of democracy and free markets. We have always opposed repression, dictatorships and central control. We cherish our own freedom and the freedom of others. A historically defining moment was the fall of the Berlin Wall in 1989. It was the beginning of the fast end of the Soviet Union. It was also the beginning of other nations believing they also could be free and determine their own future.

China is another example of peoples quest of freedom. China’s ruling power in the 1970’s made a strategic decision to convert much of its economic apparatus to a more open system to unleash the power and ingenuity of its people by capturing the benefits of our free market system while at the same time centrally controlling other strategic decisions of their country. This central control will not be able to withstand the power of the people. The freedoms given to China’s economy will slowly and surely wrestle control of the central government from the communist party.

The China experiment is another example of the United States relinquishing some of its world influence by promoting freedom and free markets in other parts of the world. China will be the historic legacy of Richard Nixon and Henry Kissinger, far surpassing Watergate.

We are slowly waking up to the fact that our promotion of freedom also means we are promoting competitors to our standard of living. As these countries become better competitors wanting more of the good life and using more energy. As this happens prices will rise and we will have little choice but to find other sources of cleaner energy.

“Per capita consumption rates in China are still about 11 times below ours, but let’s suppose they rise to our level. … China’s catching up alone would roughly double world consumption rates…

If India as well as China were to catch up (with the United States), world consumption rates would triple. If the developing world were suddenly to catch up, world rates would increase eleven fold. It would be as if the world population ballooned to 72 billion people (retaining present consumption rates).” The York Times, January 2, 2008

The above quote is somewhat outdated but the reality remains even more serious. Russia and Brazil are forming a middle class and free markets. Countries in southern Africa are becoming more prosperous as a result of gaining freedoms and exploitation of their abundant natural resources. The Arab Spring will mean more prosperous countries and citizens in that part of the world competing for the worlds bounty.

Romney’s Five Point Plan

What is Romney’s plan, exactly? He broke it down for Fortune into five categories:Below each category is my response in blue.

(1) Aggressively promote domestic energy development, especially fossil fuels. 
How can anyone disagree with developing domestic energy sources? The question is at what cost in terms of the environment and future generationsOur concern should be which presidential candidate will implement the best energy policy for us and future generations. The President has a duty to think beyond tomorrow.

World-wide demand for energy will increase dramatically as more countries develop a middle class. The BRIC countries, Brazil, Russia, India and China are well on their way to becoming good economic competitors. In 2005 the U.S. consumed 16 times as much energy per capita as did India. They have a population that is roughly 4 times ours. As India becomes more prosperous their consumption rates will get closer to ours. Over the same time period we consumed 6 times more energy on a per capita basis as China. Countries in southern Africa are beginning to experience economic success. It is also easy to envision a time when Egypt, Iran, Saudi Arabia and Jordan begin developing a middle class and thus consuming more energy on a per capita basis.

I want a President who is not squandering our future today and thinking about the next generation and the generation after that. Who do you trust to do this; Romney or Obama?

The policy should factor in the sources of energy and the affects on the environment. After all, it is our children and grandchildren we are discussing. I wonder how Dick Cheney would feel if some of this development impaired his favorite trout streams in Wyoming. He may get mad enough where he would consider taking a few oil executives out for some sport shooting.

(2) Expand the market for U.S. goods overseas by negotiating new trade agreements and standing up to China on intellectual-property and currency issues.
The Obama administration is already addressing this issue. This is why Hillary Clinton has traveled more than any other Secretary of State in our history. Negotiating treaties must be done in private. Holding a press conference on a regular basis announcing what we are demanding of other countries, and what they are demanding of us, would be counter productive. Romney knows this.

Can you imagine if, while Romney was at Bain, he held a daily press conference detailing the progress being made in his attempt to buy Staples? The deal would never have happened. It would have broke down and a competitor of Bain would have stepped in and bought Staples.

This country has invested billions, if not trillions, of dollars into technology. Technological development allows us to maintain a high living standard even as it is difficult to compete against the low cost of labor in other countries. Many of our advances made as a country can be attributed to the space program and the development of the internet by scientist working for the government. I would not be typing this on my flat screen monitor if it were not for this nations ability to create useful technology. Steve Jobs and his fellow employees at Apple would never have created that smart phone you have in your pocket if prior presidents did not have the foresight to invest in technology. YES, STEVE JOBS MADE APPLE. He made it utilizing the technology funded by our tax dollars.

 Korea and Japan need to lower tariffs on our auto exports to their countries. The current administration is working on this. I have more faith in Obama to get it done than R&R
(3) Improve workforce skills by transferring job-training programs to the states and going after teachers’ unions, which, he says, stand in the way of school choice and better instruction.

This is another one where the devil is in the details. Education, just as defense, is a national issue. If this country is going to maintain a high standard of living, relative to other countries, we need to do everything possible to nurture the greatest asset we have for the future, our children. How are we going to make sure the next Einstein, who may be a person of color, living in inner city Detroit, without a father and with an unemployed mother who has a drug problem, gets properly educated? It would be a great loss to the country if we let that child be sucked into the abyss. We must find a way to save what she has to offer society.

Condoleezza Rice at the Republican National Convention said, “But today, today, when I can look at your zip code and I can tell whether you’re going to get a good education, can I honestly say it does not matter where you came from, it matters where you are going? The crisis in K-12 education is a threat to the very fabric of who we are.” We need to address this at a national level not only for the sake of the child, but also for the sake of the nation.

I am a firm believer in giving as much power and authority as possible to the level of government that is closest to the people. The problem is each individual should have an equal chance to get a good education.

George Romney’s son, who grew up in Grosse Pointe, Michigan, had a much better chance of getting a good public education than the boy who lived eight miles away in Detroit. Further, there is an even possibility that the child living in Detroit, having the necessary skills and attributes, would to be far more successful than Mr. Romney if given the chance. Not only did the young boy in Detroit lose, but so did the nation. We cannot afford to let that happen. The world is too competitive.
 (4) Attack the deficit through budget cuts, not tax increases. 

I see that Romney has already learned the Pledge of Allegiance to Grover Norquist. Personally, I find it scary to see so many politicians take an oath to an individual, and his organization, that may be in conflict with the oath they gave to us voters when we elected them to office. The country has a serious challenge to get our fiscal house in order. It is going to require budget cuts and finding ways to increase revenue. To take tax increases off the table this early in the process is irresponsible. This issue is directly related to number 5 below.

(5), reshape the regulatory climate to “encourage and promote small business” rather than swamp it. 
This is certainly a worthy objective. My problem is how do they accomplish this while R&R is so indebted to the crony capitalists that stand in the way of small business competing. The bribes, campaign contributions, that Romney is receiving from the oligarchs who are taking over our economy will not allow this to happen. These cronies remind me of Don Corleone when he said in the movie the Godfather, “some day, and the day may never come, I will call upon you to do a service for me.” They will be calling on Mr. Romney.
1 Mitt Romney’s 5-point plan for the economy, Fortune, August 15, 2012
2 The above is corrected for an error relating yo India’s population. It is approximately 4 times that of the United States instead of 10 times as earlier stated.

Global Competition

We need to learn how to compete globally. If all countries do not play by “free market rules” you don’t have free markets. I believe in free markets and I concur with Milton Friedman that free markets, in order for them to work properly, must have a referee so that all players are competing on a level playing field. Each player in the market must not be allowed to destroy the market and turn it into an oligopoly. If this happens society loses. Capitalism is here to serve society. Society is not here to serve capitalism.

A problem with global markets is there is no strong referee to punish countries that do not abide by free market principles. It is not easy to force China not to manipulate its currency. It is difficult to require China, South Korea and Japan to remove the tariffs placed on imports of automobiles from the U.S.

Below is an excerpt from an August 4, 2012 article in the New York Times, In Pursuit of Nissan, a Jobs Lesson for the Tech Industry?. In order to give the American worker a fair shot at good jobs we need to consider such national strategies.

“Apple products remain expensive; the latest iPad, for instance, costs about $760 in Brazil, compared with $499 in the United States. But because those devices are made in Brazil and lower tariffs are charged on parts used to assemble them, Foxconn and Apple are pocketing larger shares of the profits, analysts say, offsetting the increased costs of building outside China.”

This is a way of redistributing income. Make products within the U.S., subsidize the producer by reducing tariffs and other taxes and provide good paying jobs to workers. The result is higher prices for goods and services.

As someone who believes in free markets, for years I have resisted doing such things. A free market mentality may not work as well when dealing with other players, other countries, who are willing to trample over the concept of capitalism. Here are some comments made by Romney concerning China’s approach to competing.

Stimulate, Export, Plan & Cut Military

Stimulate, export, cut deficit and military and restore equality are all related..

We are in the fourth year of a Great Recession that could have been a depression. The end is still not in sight. The net worth of all Americans was affected negatively, as has their optimism and willingness to go on spending binges as they have over the last several decades. To make the recovery happen, part of the answer is to stimulate our economy by investing in our future including infrastructure, education and the internet.

 Our ability to presently stimulate is somewhat limited by the debt burden our country is currently carrying as depicted by the chart below. If we cannot show how we can afford to stimulate now and implement a debt reduction plan in the near future, we could be facing the same problems as Greece, Spain and Portugal.

Ccircumstances after World War II , when we were the last modern economy standing, no longer exist. We were ready to convert to a peacetime economy and ready to help the remainder of the world to rebuild.

Today there are many nations in the world competing for the same consumer. Further, the American consumer is not willing and able to consume as he did in the past. He cannot use the equity in his home as a piggy bank. Restraining the consumption binge is a good thing; however, it means that we must find another engine for our growth rather than the American consumer.

The new engine is exports. The rest of the world is rushing to catch up to our life style and wealth. They want to consume and someone is going to fill their desire. People throughout the world are looking to increase their consumption of goods and services. If we do not meet this demand there are other nations clawing to fill their needs. These consumers are in China, Iran, Brazil, Russia, Southeast Asia, India, Pakistan, Eastern Europe, South and Central America, Africa and the list goes on and on and on.

Exports will only work if there is indeed free trade with the rest of the world.

Romney is right. Today China is not practicing free trade. China is artificially keeping its’ currency low. As a result, it is more expensive to buy goods from the US then it should be. Chinese goods for Americans are artificially cheap. This results in Americans, and the rest of the world, buying more goods from China then they would if the Chinese currency was valued to the market. At the sme time, our goods and services would be cheaper for the Chinese consumer.

The US has been weak-kneed on this issue. If we are going to get back to prosperous times, we need to address the currency issue. This is not going to be easy. China is a major creditor of ours. We all know how much power and influence our lender has over us in our personal lives. China has that same influence over us as a nation.

Other free trade issues need addressing. For example, Japan places a very high tariff on cars that we export to Japan. This also has to change.

After World War II, the United States defended the free world at great financial cost to this country. We also assisted the free world in getting back on its economic feet. That was then; this is now. We are proud of what we did to help the world to recover from the devastation caused by World War II. We were equally proud of what we have sacrificed to help our allies get back on their economic feet. What we did defines who we are. We are a caring, loving and giving people. We would not want it any other way.

Many of the countries that we have helped, both economically and defensively, are now some of our biggest economic competitors. If we want to prosper, we can no longer subsidize their defense and accept unfair trade restrictions. It is unfair of them to expect us to continue doing so.

More Exports Equals Less Control

We need to increase our exports and learn to protect ourselves from downturns in a global economy. This will require diligent, but not excessive, regulation of free markets and enforcement of anti-trust laws. It is the later that is the major problem… 
It will be a long time before consumption levels in the United States reach the same levels  of the pre-2008 era. Housing values are still recovering and much of the consumption was financed by consumers piling on too much debt as a result of the sub-prime debacle.Those days are over. Our own consumption must be supplemented by exports to other countries.
The world is rushing to catch up to our life style and wealth. They want to consume and someone is going to fill their desire. If we do not meet this demand there are other nations clawing to fill their needs. These consumers are in China, Iran, Southeast Asia, India, Pakistan, Eastern Europe, South and Central America, Africa and the list goes on and on and on
I believe in America and I believe we will learn to compete economically with other nations. However, while increasing our exports we will lose some of our ability to control the level of swings in our economy. We were able to counteract some problems caused by the depression of the 1930’s by government infusing money into the economy by repairing infrastructure and creating programs such as the Civilian Conversation Corp and by the significant increase in demand brought about by the unwanted World War !!. Relying on exports for a larger share of our prosperity means that a good part of the demand being filled by American workers will be from foreign consumers.The old ways of combating recession, the government pumping up domestic demand, will not work.
Globalization will require more cooperation between government and free markets, rather than less.