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Review: Clyde Prestowitz’s The Betrayal of American Prosperity

Thursday, November 5, 2015 18:22
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By Hunter Wallace

Clyde Prestowitz’s The Betrayal of American Prosperity is an excellent book.

Many years ago, I stumbled across Prestowitz’s work while in college at Auburn. If memory serves, I believe that I learned of him through one of Pat Buchanan’s books or columns, and he had a formative impact on my views on trade and economics. Now that trade is heating up as a major issue in Donald Trump’s campaign, I decided to look up Prestowitz again to get a more substantial take on trade policy.

There is a lot of real good stuff in this book for those who are unfamiliar with economic history. Great Britain, for example, became a superpower by ruthlessly building up its own shipping, trade, navy and colonies. It was only after Great Britain reached the top of the international economic pecking order that it embraced the free-market, free-trade laissez-faire gospel in the mid-nineteenth century. From 1850 to 1950, the story of the next hundred years of the laissez-faire era was Britain’s relative economic and geopolitical decline viz Germany and the United States.

After winning its independence, the United States was divided into two rival camps: to simplify a complex story, the followers of Thomas Jefferson believed in a weak federal government and a future in agriculture, while the followers of Alexander Hamilton wanted to catch up with Great Britain by creating a strong federal government, investing in infrastructure, and building a more diversified economy based on manufacturing. The Hamiltonian view prevailed after the War of 1812 and until 1945 the United States had a “protectionist” trade policy.

Behind that “protectionist” tariff wall, the United States became the richest, most self-sufficient, and powerful nation in world history. At the same time, laissez-faire Great Britain which practiced unilateral free trade fell behind the United States and Germany before it was ultimately reduced after WW1 and WW2 to a position of dependence as an American satellite in the Cold War era.

After the Second World War, the United States inherited Great Britain’s former role as the leader and guiding light of the liberal international order. By the 1950s, America had caught up and surpassed its rivals in almost every industry and the view from the top of the world looked different to US policymakers from the view at the bottom. The great cause of the time became the containment of the Soviet Union and the defeat of world communism.

It was at this point that the seeds of our present decline were sown. In order to contain the Soviets, America dedicated itself to rebuilding its “free world” allies in Western Europe and Japan. We lowered our trade barriers to stimulate European and Japanese industry. We told Americans that the path to prosperity was through the consumption of imports. In order to placate our allies, we fell into the habit of sacrificing our economic self interest for geopolitical advantage.

For the next thirty years, Western Europe and Japan rebuilt thier economies and recovered from the Second World War. Throughout this period, the dollar was the world’s reserve currency and it was pegged to gold until 1971. The Japanese and Western Europeans could export goods to the United States, earn dollars, and convert those dollars to gold. Eventually, our allies had recovered to the point though where gold was flowing out of the United States at an unsustainable rate.

President Nixon responding to the growing crisis by “floating” the dollar. Henceforth, the dollar was no longer tied to gold at a fixed exchange rate. Now, when the United States runs a trade deficit with foreign countries like China and Japan, we can turn on the printing press and get their foreign manufactured goods so long as they are willing to accept our dollars and inflation. Because the dollar is the world’s reserve currency, normal countries have to increase exports or cut their consumption to earn dollars to pay for their imports and balance their budgets. As the metropole, we can just print our way to a false prosperity and go into greater and greater debt when foreign countries invest their surplus dollars here, but this disguises the underlying economic rot.

Also in the 1970s, US crude oil production peaked and America lost its ability to control the oil market to Saudi Arabia and OPEC. Over the next forty years, crude oil imports and the soaring price of oil on the world market would continue to drive up the trade deficit and enrich the Gulf Arabs at the expense of the United States. In the last few years, fracking has finally began to provide some relief on this front.

In the 1980s, America internalized its current faith in laissez-faire economics and the free-market, free-trade doctrine while Ronald Reagan was president. The demise of the Soviet Union in 1991 seemed to confirm the neoliberal gospel that evolved into the Washington Consensus. The end of the Cold War led to a peace dividend in the 1990s that for a time masked the serious and growing economic dysfunction in the United States. The groundwork was laid for the globalization mania.

In the 1990s, we got NAFTA and the World Trade Organization. Huge countries like India and China began to compete in the new free-trade, free-market world order. Wall Street was deregulated. The European Union was consolidated into a strong rival economic bloc. The Asian Tigers grew wealthy following the Japanese model. Finally, the demise of communism unleashed Corporate America to begin the ongoing outsourcing and offshoring frenzy, which gave business enormous leverage over labor in America and slowed wage growth.

The long term trend is that foreigners, starting with the Japanese and Western Europeans after WW2, have been catching up amd getting more competitive with the United States. America’s share of world GDP is declining. By the time you get to W.’s presidency, it is China, India, Singapore, Taiwan, South Korea, Mexico and a number of other countries which are all on the way up and targeting key industries.

Japan went after automobiles and consumer electronics. China has a plan to become a world leader in aerospace. Taiwan recognized that semiconductors were a growth industry. Meanwhile, the United States has become so indoctrinated in the free-market, free-trade faith that it has lost the ability to conceive of a national economic strategy, pick winners and losers in industry, recognize and respond to all the various ways foreigners cheat to get ahead in trade deals, or discern vital differences between industries and commodities.

American politicians and economists are incapabale of thinking outside the neoliberal orthodoxy. Their solution to everything is more education and innovation. We’re doing a great job educating foreigners – half of STEM graduates – who return home to build up China and India. We innovate the television, the internet, the iPhone, but the jobs associated with production of those technologies have been moved offshore. If “competition” is always the path to prosperity, then competing with billions of Asians in the new globalized economy should be doing wonders for the White working class in the United States, not causing a huge spike in their mortality rate from suicide and depression.

There is a huge misconception underlying this debacle: that government planning and intervention in the economy is necessarily synonymous with Soviet-style state socialism. That’s not why the European Union, Japan, China, South Korea and other countries are kicking our ass in trade though. That’s not the moe we are competing with at all these days.

In reality, the US is now competing with countries which approach trade from the standpoint of gaining a national advantage. The government isn’t hostile to private industry. Instead, the government typically works in concert with business and labor as a team player in pursuit of a national economic development strategy. In contrast, American trade policy is set by whatever the strongest, loudest lobbyists on Capitol Hill want for the narrow special interest they represent.


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