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Bush's Latest Blarney

September 2, 2003

"One way to make sure that the manufacturing sector does well is to send a message overseas, [to] say, look, we expect there to be a fair playing field when it comes to trade. See, we in Americabelieve we can compete with anybody, just so long as the rules are fair, and we intend to keep the rules fair."

Dubya-Dubya-III in Richfield, Ohio

In a shameless piece of propagandist posing, if not quite one which plumbed the depths of his Mav'n'Goose carrier landing, God's Anointed Defender of Civilization milked a crowd (Oh, all right! After all those job losses, a gaggle) of midwest manufacturing workers. He went so far as to dress in a union cap and bomber (oops!) jacket.

With Treasury Secretary John Snow simultaneously raising hirsute eyebrows at his Oriental hosts over the value of their currencies, we should see all this as part of the same weary old Protectionism to which politically astute, but economically illiterate and morally bankrupt office holders usually stoop when things get tough at home.

The same whining tone has its counterpart in a bleating Washington Post story which bemoans the fact that—for now at least—governments elsewhere in the world are unwilling to fleece their taxpayers, or dragoon their sons into subsidizing or otherwise reinforcing the rapidly deteriorating situation in post-Conquest Iraq.

Well, 'Quelle surprise!' as those dastardly French enemies of freedom might say.     

Dubya's bright idea to appoint another unelected bureaucratic meddler at the Department of Commerce with specific responsibility for manufacturing cannot otherwise possibly portend anything good. His or her sole mandate will be to rustle up votes by blaming all those shifty foreigners who have had the temerity to satisfy American consumers' needs at a lower price than any one else has cared to. These foreigners have then compounded their crimes by lending the government the money to fuel its war fleets and its citizens the cash necessary to keep their housing bubble going, into the bargain.

The implications of this newly heightened emphasis could be far-reaching.

Know that there is nothing more inimical to economic recovery—as well as to personal liberty—than the doctrine encapsulated by Bush in the words: "We have a responsibility that when somebody hurts, government has got to move."

A fine sentiment, no doubt, but what this translates to in practice is a policy of taking from those more successful in the ongoing struggle to adjust to the new realities of post-Bubble America and redistributing the spoils among the losers, with an ear always on where this commandeered largesse will make the most political noise.

Whatever short-term palliative effects this might bring about, you can be sure that, in the long run, it will be detrimental both to personal enterprise and to private capital.

Perhaps more immediately, like the spendthrift Medieval kings who invariably blamed Venetian bankers or Jewish money-lenders for woes very much of their own making, this should heighten international concerns that America's biggest creditors do not get a vote in America's elections.

Given that cumulative flows into the US just since the Bubble began in 1995 have come to close to $4.1 trillion, fully 68% of the $6 trillion remitted to the Imperium in the past 50 years (a sum whose current market value is estimated at around $7.7 trillion), this might give pause for thought in finance ministries and investment committees around the world.

At its simplest, we have the spectacle of a US Treasury Secretary trooping around the Far East, effectively telling everyone he needs their acquiescence in a write-down of their painstakingly-acquired foreign assets simply because the Global Hegemon is unable to compete with them commercially in any other way.

At its most damaging, we face the ongoing prospect of barriers to trade being erected by the world's biggest market—but also by the world's biggest debtor.

Given that international trade—not to mention international money flows—have expanded far beyond any underlying increase in output over the course of the past decade, and given further that a fragile global economy needs less, rather than more, uncertainty to motivate investors and businessmen to take on risk anew, this could easily snowball.

With international relations already highly strained—thanks largely, if not wholly, to the unwontedly belligerent approach generally adopted by the current US Administration in its dealings with others—the clear peril here is that a series of escalating trade disputes impairs the ability of flows of goods to discharge the existing financial burdens of debt service and repayment as they come due.

If international credit does become restricted in this manner, it will impose a further strain on financial sector balance sheets, already, in far too many cases, in a parlous condition, thanks to the fallout from the US-led Bubble.

It should be recognized that exactly this process was a key feature in the appalling series of policy mistakes which turned the '29 Crash into the Great Depression.

What it also does is raise the prospect that an America living wildly beyond its means at all levels of society will get rather more of an adjustment in its currency than it bargained for.

Yes, many of us in the West—not just in the US—have been living too high on the hog on newly-printed money. We will all either have to perform heroics of productive endeavour to restore the balance, or face the grim reckoning that we are not as wealthy as we currently believe. A drastic adjustment in currency parities may well be a part of that.

However, to the extent this is sudden and if, as will sadly be the case, it is not matched by greater thrift at home, this will also concentrate monetary inflation onto import prices (even as our attempt to offset this with our own exports may face greater retaliatory hurdles abroad). It will further destabilize an already crumbling bond market, with foreign repatriation adding to the wounds inflicted by the Fed's own foolishness.

It is hard to overstate the risks which will attach to such a development. That inveterate political trimmer and wannabe Ben Strong-beater, Alan Greenspan, is highly unlikely to do what should be done in that circumstance and administer the necessary purgative to expunge the poison as rapidly as possible. Rather, he will run true to form, continuing to fight the market by expanding credit yet further, and we would thus face the very real danger of him triggering a devastating inflationary runaway. Thus are monetary policy and trade policy bound up with each other, as are all governmental attacks on freedom and prosperity.


Sean Corrigan is a principal of  www.capital-insight.com, a London-based economic consultancy. He is also comanager of the Bermuda-based  Edelweiss Fund. See his Mises.org  Articles Archive, or send him  MAIL. See also the  Study Guide on Business Cycles. 

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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