April ended with the failure of Democrats to pass legislation that would have eventually raised the Federal minimum wage to 15 dollars per hour. Although Democrats pledged to continue their fight for raising the minimum wage, it is a battle that cannot be won. More importantly, there are costs to simply raising minimum wage without retooling the underlying mechanisms of our economy.
The reason our economy has a poverty and wealth distribution problem is that the mechanisms of our economy are not driving capital into enough businesses and industries that could provide better wages while workers do not have enough leverage to negotiate better incomes when employers can provide better wages. Focusing simply on raising the minimum wage only squeezes the Middle Class as their incomes are also stagnating while accelerated inflation will only undermine any benefit derived from raising the minimum wage. Quite frankly, raising the minimum wage is not enough.
We need to focus on improving “Free Trade” agreements by narrowing their scope to maximize the benefits for American consumers and minimize the costs for American workers; just as other countries need to do the same for themselves. We also need to rework our tax system, so it does not favor the wealthiest Americans and companies or distorts our economy as the capital gains tax deduction likely does. We also need healthier regulations that are most effective and less cumbersome while we also need to strengthen the social safety net by turning it into a support network for personal and economic development.
Ukraine Crisis: Now, It’s Personal
With the US and European Union adding new sanctions that actually target the inner circle of the Putin dynasty, the goal is to apply direct economic pressure to Putin’s government without isolating the leader while limiting the harm done to the Russian People. Given Putin’s personality, this could well provoke the Russian President into taking action to prove he is in control of the situation. That said, the International Community must protect the integrity of the International Community and sanctioning the Russian power elite is the least destructive, more narrowest path possible. The truth of the matter is that Putin will act if Putin wants to act, thus these sanctions will either accelerate his plans or derail them.
Clearly, people are getting nervous. We should be. After all, we might be going from era where the primary focus of the International Community was terrorism and the disruptive behavior of small rogue states that do not conform to international norms back to one where the International Community is ravished by conflicts between major powers. This is especially disconcerting given the fact the world is still recovering from the Great Recession. Of course, a conflict with Russia would have always severely damaged our economy.
Unfortunately, both Russia’s behavior and steps to punish Russia’s behavior risk destabilizing the International Community. In many respects, President Obama and the leaders of the world are facing a “Civil War” type decision as President Abraham Lincoln once did that could tear our well-connected world apart. Certainly, a potential conflict should be avoided, but there are far greater costs for failing to protect the widespread stability and prosperity our world has achieved over the last hundred years.
In spite of diplomatic efforts to subdue Russian attempts to reassert direct influence over Ukraine and break the Western-leaning interim government, Russia has returned to promoting conflict by violating Ukrainian airspace. At the same time, Russia is starting to feel the economic pain of sanctions imposed by the US and other Western nations, with more on the way.
Unfortunately, Russian President Putin seems to have been emboldened by a bump in his popularity, as is evident in his increasingly aggressive treat of Ukraine and renewed suppression of political dissenters. While the Russian People may feel energized by their President “standing up to the West” and patriotic in the face of Putin’s efforts to empower Russia, a strong dose of their new economic reality will likely curb this enthusiasm very soon.
That said, Putin may well not care, if he is willing to sacrifice his political future, or end his career soon, and sees his aggressive behavior “for the good of Russia.” In which case, Putin will push the international conflict as far as he can before he is forced to quit or decides to give up power. Although the West should always be open to compromise and diplomatic solutions, the cohesion and conventions of the International Community must be respected. In accordance, the West may stand steadfast in their resolve to address this crisis through economic sanctions.
While Russia should never be diplomatically isolated, the price for invading weaker states, as though we live in a 19th Century world order must be paid, thus Russia needs to be economically chastised until the power elites abandon their counterproductive behavior. Unfortunately, things are going to get messy very soon. As such, the world must remember the American People are not against the Russia People, nor are we against Vladimir Putin as the Russian People have the right to choose their leaders; we are, however, against Russia’s mistreat of its neighbors.
Going Bigger Than NAFTA: TPP
One of the main purposes of President Obama’s trip to Asia has been the pursuit of the Trans-Pacific Partnership Free Trade Agreement (TPP). At issue is increased access to foreign markets for American goods, e.g. American beef and truck in Japan. At the same time, the American People are looking closely at the ripple effects of the 20-year-old NAFTA, which TPP is largely patterned after.
Opponents point to data on outsourcing, shrinking earnings, growing economic disparity, and other economic indicators that demonstrate the average American is losing ground to NAFTA. Proponents point to data on increased GDP, capital gains, and other macroscopic economic gains while they essentially argue average Americans would have done worse if NAFTA had not been implemented.
Given both sides have significant evidence supporting their positions, it is important to interpret the facts under a larger framework or worldview, i.e. numbers lack wisdom. Lowering trade barriers means foreign goods are no longer taxed. When domestic goods are taxed, unless business taxes are displaced onto individual taxpayers, free trade translates into domestic goods that are less competitive.
If a foreign country has an established, efficient industry, which does not cater to vital national interests, that can deliver an equivalent and/or superior product and there is a weak or nonexistent domestic industry, free trade can be beneficial as it can be used to remove trade barriers to our established industries in exchange for the same benefit. This can translates into lower priced goods with few economic disruptions to domestic industries, thus it is in a nation’s interests.
Absent this scenario, i.e. a clear coequal exchange of economic benefits, free trade is an industry killer, because it disadvantages the already mature, often more expensive, domestic industry and favors investment in cheaper options, especially when it comes to cheap foreign labor. Meanwhile, national interests change with time, thus treatises and treaty Law must be recalibrated to serve the shifting interests of allies.
Obviously, economic interests shift very rapidly. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. Unfortunately, NAFTA and TPP do not include maintenance provisions, thus they do not shift with national interests.
That said, the fact that America is the world’s wealthiest nation dictates labor costs and other operating costs will certainly be higher than those in poorer countries. After all, simply surviving in a developed country, let alone thriving, requires a higher income and access to modern amenities while American economic supremacy is dependent upon the ability of workers to maintain a higher standard of living, engage in higher cost consumption, invest for the future, and advance their fiscal standing.
As the US is both rich in labor and financial capital, America needs financial capital to generate jobs that support a massive workforce with a broad range of skills and technical knowledge. Beyond economics, outsourcing threatens a nation’s ability to regulate its industries, which is part of an overall loss of economic sovereignty that free trade encourages.
Given this context, those who support NAFTA and TPP have a less compelling argument than those who oppose untargeted, unfettered Free Trade. As such, the Obama Administration needs to a seek a TPP deal that better serves the interests of the American People, or be willing to walk away. The same is true for all Asian nations, though the decisions of the US will determine what costs are paid for joining and rejecting the TPP.
Obama Pivots to Asia,...again
Once again, the Obama Administration is supposedly pivoting its focus to Asia. Clearly, the US government does not need to have a strong presence in Asia and the Obama Administration’s efforts over the last few years are helping us renew our relationships in Asia while more can be done. Unfortunately, the reason the Obama Administration has to continually pivot back to policy focuses like Asia is that we live in a world where pressing global issues demand the action of global powers, thus the focus of the Obama Administration and the next Presidency will always be on the most pressing issue of the day.
Right now, the issue of the day is regrettably Ukraine, thus the President’s efforts in Asia will quickly be crowded out by news of the Russian-provoked international conflict. Although the efforts of the Obama Administration in Asia may well be considered a major part of the Obama Administration’s legacy, but long-term issues like the strengthening of our alliances and economic partnerships will always take a backseat to unfolding crises in our very dynamic, interconnected world, especially given the need to focus on so many critical global issues.
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