Does Kusumi know something
\r\nthat Washington doesn't?<\/p>\r\n
America's 18-year-old for President:<\/b><\/p>\r\n
Why does Washington \"just not get it\"\r\nabout
\r\nwhat's really<\/i> the matter with free trade?<\/p>\r\n
John Kusumi has been\r\nadvocating policy and critiquing Washington for 24 years. The former 18-year-old\r\nfor U.S. President (he was an independent candidate in 1984) is now 37 years\r\nold, and out with a book, Activate This!<\/i>.<\/p>\r\n
Through his book, through\r\nspeeches, interviews, and publishing, and through his work at the China Support\r\nNetwork, Kusumi has been critical of globalized free trade as promulgated by\r\nWashington.<\/p>\r\n
He says, \"Everyone\r\ncarries around a mental model -- a conception of how things work. In Washington,\r\nthe conventional wisdom about trade deficits has been flat wrong. If my book\r\nwere promoted, caught on, or simply picked up and read by the likes of President\r\nBush, John Kerry, and the staffers around them -- then, it might dawn on them.\r\nIn the globalization of free trade, the trouble is that a faulty paradigm became\r\nconventional wisdom.\"<\/p>\r\n
What might really dawn upon\r\nthese people? That they have followed flawed logic? --The question is answered\r\nexplicitly in the excerpt below, taken from Kusumi's book, Activate\r\nThis!<\/i>. To understand the problem\r\nof free trade, Kusumi says that it is first necessary to understand trade\r\ndeficits.<\/p>\r\n
Washington types should care\r\nto understand trade deficits, and now Kusumi is trying to make the debate\r\naccessible for laymen. \"Sometimes, people say, 'Slow down and explain this\r\nto me like I'm an 8-year-old.' This is my attempt to introduce trade deficits\r\nfor readers from 8 to 80,\" he said.<\/p>\r\n
He asks your indulgence to\r\nfollow the explanation, that he renders like a school teacher in this 'primer on\r\ntrade deficits,' from his book.<\/p>\r\n
This\r\nchapter is an occasion when I can convey a clear understanding of trade deficits\r\nto my readers, with material that may be new to many. Trade deficits ought to be\r\nless obscure and esoteric than they have been heretofore. When we wake up to\r\nthem, we find many other political issues and problems linked to\r\nmisunderstanding of trade deficits. Included here, is a better view of trade\r\ndeficits for Washington, which has been too foggy for too long on this topic.\r\n\r\n<\/span><\/p>\r\n Above,\r\nI said I believe that Clinton was working with faulty arithmetic. If true, that\r\ncan be ascribed to a conventional misunderstanding of trade deficits on the part\r\nof the U.S. establishment. It is in this area of trade deficits where our entire\r\npolity needs to upgrade its understanding.\r\n\r\n<\/span><\/p>\r\n To\r\nease understanding, in writing here, I may use the less stilted of two terms,\r\nwhere they are interchangeable. For example, I may speak of buying, rather than\r\n“importing.” For present purposes, they are interchangeable terms. Likewise,\r\nI may speak of selling, rather than “exporting.”\r\n\r\n<\/span><\/p>\r\n The\r\nstilted word, “bilateral,” describes trade as it actually takes place. By\r\nthis, I mean that two parties make a transaction, or exchange. Generally, money\r\nchanges hands. At the end of day, trade is buying and selling. Trade certainly\r\nadds up, but when it is understood through this “atomic theory,” we see that\r\nits simplest, most necessary element is a transaction.\r\n\r\n<\/span><\/p>\r\n Two\r\nparties in any transaction have an economic relationship. We can speak of China;\r\nAmerica; a popsicle stand; or, a lemonade stand. Economic parties share\r\nessential things in common. In all cases, they have things they buy; things they\r\nsell; and, they have their money.\r\n\r\n<\/span><\/p>\r\n For\r\nthis view of trade deficits, I suggest you identify with one party, at one end\r\nof a relationship as described. E.g., you run “your popsicle stand.” In the\r\ndiscussion, America substitutes for your popsicle stand, but the same principles\r\napply, and the conceptual play is meant to help with learning our material.\r\n\r\n<\/span><\/p>\r\n For\r\nits literal definition, a “trade deficit” is the amount you buy, minus the\r\namount you sell, when that calculation comes out to a positive number. For that\r\ncalculation to return a positive number, buying must be more than selling. Then,\r\nthe value of the result expresses the amount of your trade deficit. (The result\r\nanswers two questions. “How much is the trade deficit?” And, “How much is\r\nthe difference, of buying in excess of selling?”)\r\n\r\n<\/span><\/p>\r\n Thinking\r\nabout the money comes next. Buying entails money going out, or going away.\r\nSelling entails money coming in. Within the meaning of “trade deficit,” to\r\nhave one requires that your level of buying is in excess of your level of\r\nselling. More money is going out than is coming in. The amount of the trade\r\ndeficit is a loss of money.\r\n\r\n<\/span><\/p>\r\n To\r\na popsicle stand, that means operating at a loss. For the American economy, it\r\nmeans likewise, and worse.\r\n\r\n<\/span><\/p>\r\n The\r\nbad news does not stop at the American economy. The money that flows out goes\r\nsomewhere – it arrives at the other end of the trade. In China, the money\r\ncomes in. At their lemonade stand, they make a profit. America’s loss is\r\nChina’s gain.\r\n\r\n<\/span><\/p>\r\n The\r\ndefinition is scarcely my point, but it is my beginning. Going into usage;\r\nimplications; economic upshots; and, policy upshots must develop the clear\r\nunderstanding and better view as promised. I may have something to say about\r\nAmerica’s loss; later, the Chinese democracy movement may have something to\r\nsay about China’s gain. Here, we must look at each side of that coin, starting\r\nwith the American side.\r\n\r\n<\/span><\/p>\r\n For\r\nthe American exposition, we must consider two lines of inquiry. First, are trade\r\ndeficits a good thing, or a bad thing? Second, what may happen in the future of\r\ntrade with China? Will trade deficits get larger, smaller, or cut off? These are\r\nthree political scenarios. What are the implications in each case?\r\n\r\n<\/span><\/p>\r\n The\r\nfirst question, above, has found American politicians on both sides of the\r\nissue. On one side, trade deficits are a problem (bad thing), and they are\r\nroundly decried. Alternately, on the other side, trade deficits are a non-issue\r\n(good thing), and they are excused and dismissed.\r\n\r\n<\/span><\/p>\r\n I\r\nwill stand firmly in saying that trade deficits are a bad thing. With having\r\nintroduced trade deficits as a bad thing, above, readers who are with me may be\r\nsaying, “Duh – losing money is a bad thing.” True enough; and, the more I\r\nlooked into it, the more I found that trade deficits hurt the economy in\r\nalarming ways. I want to answer my readers who may ask, “Why don’t\r\npoliticians ‘get it,’ or do the right thing?” We will return to\r\ndiscovering “bads” in the reality of trade deficits; but to understand their\r\nplace in Washington’s political situation, we must look at the perception of\r\ntrade deficits. The answer is a matter within perception, apart from reality.\r\n\r\n<\/span><\/p>\r\n The\r\nU.S. establishment has been humming along with persuasive arguments that trade\r\ndeficits are a ‘non-issue.’ Some have stock answers, to explain away trade\r\ndeficits. Some politicians may genuinely, and in good faith, believe these same\r\nexplanations. Such arguments are persuasive – but wrong. I must digress, and\r\nperhaps excuse politicians from full culpability.\r\n\r\n<\/span><\/p>\r\n We\r\nshould know that politicians themselves get an education. They, too, hear these\r\nsame faulty explanations. If we seek one, the culprit could be the politician\r\n– or, the culprit could be the argument, where it has become conventional\r\nwisdom and the line of the day in the U.S. establishment. Maybe the politician\r\nwasn’t born bad, but the argument certainly was; and then, it became what\r\n“everybody thinks” in the establishment.\r\n\r\n<\/span><\/p>\r\n I\r\npersonally confess to having taken the learning curve on this issue, and this\r\nmay be why I am going easy on politicians. I, myself, originally fell for the\r\nstandard explanations – and later, had my own epiphany about trade deficits.\r\nMy vignette may be instructive, for being rare.\r\n\r\n<\/span><\/p>\r\n In\r\nnormal America, nobody thinks about trade deficits, because the whole matter is\r\n“above their pay grade.” It is nobody’s job to worry about trade deficits,\r\nunless they are an occupant of the White House, or a presidential candidate.\r\nThat’s where I come in; who else was the 18-year-old candidate for U.S.\r\nPresident? From 1984, the answer is, “no one else was.”\r\n\r\n<\/span><\/p>\r\n With\r\nthis book being my life’s story, we see I hadn’t tried to be a politician in\r\nmany years, but study of presidential issues remained my interest, into college.\r\nAt age 18, I certainly did not know everything, and I still had much to learn. I\r\nwas frankly curious about trade deficits, and I picked up the Atlantic monthly.\r\n\r\n<\/span><\/p>\r\n I\r\nwas happy to find an Atlantic article, which expounded about them at some\r\nlength. Here, in the second half of the 1980s, I read the standard explanation,\r\nwhere trade deficits can be discounted for purposes of policy making. The\r\nexplanation essentially says that money re-circulates; what goes around, comes\r\naround; it all comes out in the wash; and, “it’s all good.”\r\n\r\n<\/span><\/p>\r\n I\r\nrespected the Atlantic as a source of information, and I was convinced. It\r\nappeared that trade deficits were a smoke screen issue, and that at\r\nmacro-economic levels, there was no ultimate downside to trade deficits. I will\r\ndub myself of those days to be “College Kusumi.” College Kusumi put down the\r\nmagazine, shrugged, and said, “Great – I can blow off trade deficits [as a\r\nfactor in any future policy development]!”\r\n\r\n<\/span><\/p>\r\n For\r\nmany years, this caused me to stop paying attention to the issue of trade\r\ndeficits. At the start of his term, I believe that Bill Clinton operated under\r\nsimilar assumptions. Near the start of his term, his Secretary of Labor, Robert\r\nReich, published a book, The Work of Nations<\/i>. Since Reich was Clinton’s\r\nadvisor, the book may be indicative of Clinton’s thinking in the day. This\r\nbook again excused trade deficits, and conveyed the underpinnings of what would\r\nlater become the globalization of free trade.\r\n\r\n<\/span><\/p>\r\n The\r\nbook forecast the decline of manufacturing in America. Manufacturing would move\r\noffshore, inexorably, as corporations seek lower costs. The book offered no hope\r\nfor that sector of our economy, and did not advocate any moves to stem the\r\nerosion. With this grim prognosis, the book suggested we roll with the\r\ninevitable decline, accept it, and move on to free trade, seeking to make the\r\nbest of this scenario.\r\n\r\n<\/span><\/p>\r\n In\r\nthe day, I agreed that trade deficits were a non-issue, and my issue with the\r\nbook was simply that “no hope for the manufacturing sector” didn’t sit\r\nwell. As a society, we went to all the trouble of having an industrial\r\nrevolution. Now, it would go away, to not even a whimper or a response on our\r\npart? Even were we resigned to manufacturing’s erosion, principles from\r\nmicroeconomics would have us minimizing the losses. The trend may be for loss of\r\nmanufacturing, but why would we give in and hurry the erosion along? The book\r\nwas a green light for buzzards and vultures to contemplate the carcass of\r\nAmerican industry.\r\n\r\n<\/span><\/p>\r\n If\r\none is oblivious to trade deficits, what can happen is the globalization of free\r\ntrade. That proceeded to happen in the 1990s; and, I will also return to\r\nglobalization. But, my vignette leads to my own epiphany about trade deficits.\r\n\r\n<\/span><\/p>\r\n I\r\ncannot tie my epiphany to an event or a specific day. Unique conditions form a\r\nsoup of precursors in my environment. The soup base recipe might appear as\r\nfollows.\r\n\r\n<\/span>\r\n\r\n<\/span><\/p>\r\n Into\r\nthis fertile environment fell the Chinese trade deal, which prompted me to think\r\nfuriously about China trade. I had long been aware that China was getting a good\r\ndeal; but now, I began to analyze America’s bad deal. Pieces of the puzzle,\r\nwhich had long been on my desk, began coming together. That was an epiphany.\r\n\r\n<\/span><\/p>\r\n Among\r\nthe toughest actions for people to take is to admit mistakes. Politicians in\r\nparticular, care very much to appear infallible. In fact, software CEOs would\r\nlike to appear infallible. I can’t predict that we will hear from many\r\npoliticians, saying, “All those years – I was wrong about trade deficits!”\r\nBut for my part, I admit that all those years – I was wrong about trade\r\ndeficits!\r\n\r\n<\/span><\/p>\r\n My\r\ndigression was to express that politicians can have a misconception about trade\r\ndeficits, and this can be quite a natural condition. Our environment holds it as\r\nconventional wisdom. The faulty reasoning is widely shared, and effectively\r\neducates many. Anchors, pundits, and commentators are not accustomed to tearing\r\ninto trade deficits, like they once did with budget deficits.\r\n\r\n<\/span><\/p>\r\n Even\r\ncollege classes of introductory economics have, on occasion, missed this bad\r\nnews about trade deficits. For most people, all that is learned of economics is\r\ntwo widely given courses—\r\n\r\n<\/span>\r\n\r\n<\/span><\/p>\r\n Consider\r\nthe question, “How macro is macro?” In the old days, we may have equated the\r\nnational economy with being macro. A low volume of trade encouraged the thought\r\nof it as an island. In the new days, we may consider three “levels” of macro\r\n– national; the free world; and, the globe.\r\n\r\n<\/span><\/p>\r\n These\r\nearly courses go for theory and keep a top line orientation. They remove other\r\nconsiderations and assume “ceteris paribus,” meaning that variables in the\r\nenvironment do not change. Macro and micro are simplified academic models.\r\n\r\n<\/span><\/p>\r\n For\r\nthe uninitiated, microeconomics is about individual players in the economy –\r\nfirms and businesses. Microeconomics is focused on a small scale, not the\r\ninternational level where trade deficits occur. Micro will not tell you about\r\ntrade deficits.\r\n\r\n<\/span><\/p>\r\n Macroeconomics\r\nis focused at the level containing all. At that level, trade outside the system\r\nmakes no sense to introduce. Again, you could completely miss trade deficits,\r\nwhich occur between nations.\r\n\r\n<\/span><\/p>\r\n Perhaps\r\nworse, professors will sometimes repeat the line, that to the macro economy,\r\ntrade deficits are a non-issue. In one sense, they are right. –Because the\r\nglobe has no trading partner, it also has no trade deficits. In this academic\r\nway, trade deficits disappear. To get there, one must consider the globe as one\r\naccounting unit, and not consider any other. Smaller units, like nations, do\r\nlive among company, trade, trading partners, and trade deficits.\r\n\r\n<\/span><\/p>\r\n We\r\ncan see that our environment is ripe for misunderstanding of trade deficits.\r\n\r\n<\/span><\/p>\r\n Make\r\nno mistake; trade deficits are a bad thing. But, countervailing ideas have\r\ngained currency. Politicians have been working with the perception of trade\r\ndeficits, not the reality. In answer to the question, “Why don’t politicians\r\n‘get it,’ or do the right thing,” they truly may not know any better.\r\n\r\n<\/span><\/p>\r\n Turning\r\naway from perception, let’s turn back to reality. Upon review, the reality of\r\ntrade deficits only gets uglier, and yet it is news to many politicians. Let’s\r\nlook at related issues where trade deficits hurt the economy.\r\n\r\n<\/span>\r\n\r\n<\/span><\/p>\r\n —Each,\r\na hefty issue. I will condense my discussion to one paragraph for each of these\r\nsix issues.\r\n\r\n<\/span><\/p>\r\n On\r\njobs, a<\/span> trade deficit represents jobs\r\nwhich are not here. A widening trade deficit often represents American jobs\r\ngoing overseas. Politicians can, should, and must favor more jobs in their\r\ndistricts, not fewer. Progress in the right direction is hampered or hindered by\r\ntrade deficits.\r\n\r\n<\/span><\/p>\r\n On\r\nwages, any loss of American jobs, as accompanies a widening trade deficit,\r\nrepresents downward wage pressure in America. As more people compete for fewer\r\njobs, wages are pushed down, based on the laws of supply and demand. Politicians\r\nshould not favor income erosion, but trade deficits challenge us in this\r\ndepartment.\r\n\r\n<\/span><\/p>\r\n On\r\nstrength of the dollar, trade deficits represent a hemorrhage of liquidity from\r\nthe American economy. This can lead to weakness in the value of the dollar on\r\nthe currency markets. Trade deficits are bad for the strength of the dollar.<\/span>\r\n\r\n<\/span><\/p>\r\n On\r\ninflation, should there be erosion in the value of the dollar as above, that\r\nmeans something in America – higher prices for imported goods. This mentioned\r\ncondition would contribute to rising inflation. Trade deficits are bad for\r\nprospective inflation.\r\n\r\n<\/span><\/p>\r\n On\r\ncost of living, trade deficits can hurt in two ways. <\/span>Falling\r\nwages, which as noted may accompany a widening trade deficit, lead to a higher relative<\/i>\r\ncost of living. Should the inflation scenario materialize as above, that would\r\ncontribute to a higher absolute<\/i> cost of living. The cost of living can\r\nmove on a relative basis, or an absolute basis, and in each way, trade deficits\r\npressure the cost of living higher, not lower.\r\n\r\n<\/span><\/p>\r\n On\r\nthe industrial base, we are allowing China an unfair advantage – slave labor.\r\nOn this tilted playing field, more than our money goes to China. China will get\r\nmore than its share of the free world’s industrial base. Harry Wu, a leading\r\nChinese dissident, has said: “Forced labor of any kind upsets the balance of\r\ntrade, by giving one economy an advantage.”\r\n\r\n<\/span><\/p>\r\n Trade\r\ndeficits are when \"we are getting poorer, and somebody else is getting\r\nricher.\" Trade deficits can be thought of as a hole in our pockets. I have\r\nsaid there is a $350 billion hole in our economy.\r\n\r\n<\/span><\/p>\r\n Trade\r\ndeficits can also be thought of as economic activity that is “over there”\r\ninstead of “over here.” The $350 billion is spending. Instead of being\r\n“over there,” it could be economic activity at home. Once the destination\r\neconomy is known, that economy, alone, benefits from a multiplier effect as\r\nmoney is spent. Our economic loss includes the multiplier effect on $350 billion\r\nspent abroad.\r\n\r\n<\/span><\/p>\r\n Making\r\nthe point of the discussion, trade deficits do<\/i> hurt our economy – and\r\nthat’s a bad thing. <\/span>I may divide politicians into two categories:\r\n“trade deficit aware,” and “trade deficit agnostic.” In Washington, the\r\nagnostics have been running the show, and they should “get religion.”\r\n<\/span><\/p>\r\n Thank you for reading my excerpt, taken from\r\n Chapter 14 of my book. Once we are clear about trade deficits, then the\r\n problem of free trade is more evident: Free trade encourages trade deficits.\r\n It also encourages misbehavior from communists, dictators, tyrants, and thugs,\r\n who are beating us at our own game. (The 'trade deficit agnostic' people have\r\n also been 'values agnostic,' and globalized free trade requires the assumption\r\n that there are no bad guys; no bad trading partners; and no bad business\r\n practices.) It challenges freedom and democracy by buttressing tyranny, and\r\n it is ultimately against America's own self interest.<\/p>\r\n The book is available at www.kusumi.com.<\/p>\r\n\r\n John Kusumi was Ronald Reagan's youngest\r\npolitical opponent, and the first Generation X politician. As 1984's 18-year-old\r\nin the race for the White House, his was the first appearance of any 'GenXer' in\r\nU.S. federal elections. Kusumi founded the China Support Network (CSN) in 1989.\r\nStanding with the Tiananmen Square pro-democracy dissidents, CSN continues to\r\nurge anti-communist Americans to join this battle-with-communism, in progress to\r\nthis day. See www.chinasupport.net<\/i>\r\n<\/p>\n","contact":"","link":"www.kusumi.com","address":"","phone":"","parent_id":0,"mime_type":"text\/html","summary":"What every politician ought to know before taking office","numcomment":0,"fileurl":"\/uploads\/","filesize":null,"article_url":"\/news\/2004\/06\/113204.php"},"attachments":[],"comments":[]}\r\n
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