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Wednesday, May 27, 2015

Trans-Pacific Race to Bottom

                 The Trans-Pacific Trade Partnership ---
      A Race to the Bottom and a Subversion of Democracy

Chinese assembly workers' average work week: 56 hours. Average income: $1.33 to $1.74 an hour, or  $75 to $97 per week, or $3,900 to $5,100 a year. Read the full report at Economic Policy Institute. But other Chinese workers earn less than $0.50 an hour.
In 2007 manufacturing costs in China were 4% of comparable labor costs in the U.S., or $1.36 an hour versus $34 an hour. (See Labor Department publication here.)
For a BLS comparison among 33 countries see here. Mexico average, $6.48 an hour, U.S. $35.55 an hour. In Mexico 66% of workers earn less than 3 times the daily 2015 minimum wage of $4.58 per day, meaning  2/3rds earn less than $15 a day (see this report section 5, table 1). $15 a day is about $75 a week or $3,900 a year. 40% of Mexican workers do not earn enough to maintain their families above the poverty line, see here. These are our trading partners!
On May 14, 2015, The Senate approved, 65 to 33, “fast track” authority for the trade agreement known as the Trans-Pacific Partnership (TPP) among ten nations.  
The vote fell out: Republicans 49 yes, 2 abstentions; Democrats 16 yes, 31 no; Independents 2 no. Senator Feinstein yes, Senator Boxer no. 

This deal has been highly controversial. The group Private Citizen, Global Trade Watch, summed up their critique: “. . . the deal would extend the incentives for U.S. firms to offshore investment and jobs to lower-wage countries.” Also it would create expanded powers for foreign corporations to challenge protective regulations on finance, on the environment, and workplace safety. It does nothing to end "currency manipulation" according to Robert Scott at the Economic Policy Institute, which if eliminated would create 2.3 to 5.8 million U.S. jobs. Currency manipulation is the "leading cause of these trade deficits" according to Scott. Senator Elizabeth Warren states that the TPP would “tilt the playing field in the U.S. further in favor of big multinational corporations. Worse, it would undermine U.S. sovereignty.” (Both those reports, by Scott and Warren, are essential reading to understand this issue.)

It is challenged by economist Dean Baker who says, “For example, if New York State wants to restrict fracking, a foreign gas or oil company could contest the ban in an investor state tribunal. . . . But the TPP is about corporate profits, not free trade.” 

A statement from Americans for Financial Reform argues, “Any bank from a TPP signatory country that claims disadvantage from a regulation . . . could bring a private challenge and claim compensation from U.S. taxpayers.” The Fed could not increase the reserve requirements on banks without approval from the TPP. The U.S. banking system crashed our economy in 2008 bringing an 18 month recession, and we are still suffering from that disaster. This  Great Recession occurred because between 1996 and 2008 banking and credit expansion went wild; in these 12 years the "debt outstanding" of the "domestic financial sector" (see the Federal Reserve report, Table D.3) grew at a rate 5.5 times faster than the economy grew, adjusting for inflation and population growth. Outstanding debt of the domestic financial sector increased from 59% of GDP to 116% of GDP. (see here to calculate for yourself). How can debt burden  double over 12 years, expanding 5.5 times faster than overall growth per capita, without a train wreck resulting? This unregulated credit system caused the destruction of 15 million jobs (8.75 million permanently eliminated according to the BLS), the nose dive of the employment to population ratio, from which we are only 20% recovered after 6 full years, and the loss of family savings (a 40% loss at the median household from $135,400 to $81,200) and the loss of income combined with mortgage  foreclosure for about 1 in 10 mortgage holders. In 2008, for the second time since 1933, the national income declined. Simultaneous to this bad news, the Federal Reserve bailed the banks with $30 trillion in temporary loans, and corporate profits are now at a historical high, and private wealth has increased by over 30% (adjusting for inflation and population growth). That 30% increase in private wealth, an increase of $24.6 trillion in 6 years, brings total private net worth to $83 trillion, and brings the average net worth of all U.S. households to $675,000. But the typical or median household owns $81,200. Median net worth dropped by 40.2% in the same 6 years, down from $135,000. (Both are Federal Reserve data, Flow of Funds report, page 2, and Fed Chartbook, which I hyper link to below.) The wealthiest Americans are the only group apparently benefitting from the self-destruction of the financial sector. 
Most Americans are still up the creek.  We still need stronger measures to reign in the banks, and the TPP undermines our own laws to protect ourselves.   (See my last essay for a fuller description.) Since 2007, Q4, economic growth, real  GDP per capita, has slowed to its slowest rate since 1950, see the Fed's graph.  This is the consequence of the Bush era disregard for financial regulation, and Obama's preference to protect finance not the general working population. By extension, growth has not been this slow since the Great Depression. 

My take is that TPP would continue to lower wages. Presently the collective wage earnings of the lower-earning half (77 million) of all U.S. workers is less than 8 percent of total national income. Their average annual income is less than $10,000, while the average income for all 155 million workers is more than $80,000. This is a little complicated because only 68.2% of all income is from wage and salaries (see the next link below, page 26). But if we compare taxpayers, not workers, the top 1% of taxpayers earn one sixth of all income, more than 54% of lower-earning taxpayers. The top-earning 5% collectively earn more than the collective income of the lower 69% (see the report from the Joint Committee on Taxation, page 30). As for wealth, the portion of private wealth held by the poorer 50% of U.S. households is 1.1%. These ratios are worse in Mexico and China. (See here, page 45, inter quintile ratios 20/80) Economists claim 3.2 million (read the entire report by Robert Scott) to 5 million U.S. jobs have been lost due to trade with China since 2000. This is a race to the bottom. 

While trade could be a means to enrich low-income America, it has not, in fact incomes have increased almost only to the wealthiest in spite of greater trade and bigger trade deficits. See the EPI report that shows 2.9% gain in growth of income to the lower 99% of Americans while the top 1% gains 180.9%, 1979 to 2012, 33 years. The top triples its income in 33 years, while the rest of the nation see no gain. 

Our trade could and should promote inclusive prosperity, and it is possible.
A radio interview dealing with the TPP with Roger Hickey, co-founder of the Economic Policy Institute, was aired on KPFA on May 24, listen to it here. The Senate may be lost but the House of Representatives may still block passage.

Chinese labor classroom


If the above essay was not long enough, here is a letter I wrote to Congressman McClintock's Facebook page. It follows:

Dear Mr. McClintock, 
In the last 51 years, since January 1964, 80% of the nation's workers, called nonsupervisory workers, have seen their average weekly incomes (and by extension their annual incomes) decline by 4%. Adjusting for inflation, the $730.65 weekly earning in 1964 is now $704.33 in April 2015 --- a decline of 3.6%. In contrast, the disposable (after tax) income of average Americans has increased by 193% since 1964 — this is almost a tripling (from $13,048 to $38,211, see the Fed graph here). Why have 80% of the nation's workers been subject to a frozen income level while the nation's per capita disposable income has nearly tripled? 
See the Fed graph:
80% of U.S. workers are nonsupervisory. You claim that the trade pacts, TPP in particular, are good for the average worker. They are not. 

Here's a quote about the TPP trade pact that you advocate:
"Most (not all, but most) of the countries that would be included in the TPP are poorer and more labor-abundant than the United States. Standard trade theory has a clear prediction of what happens when the United States expands trade with such countries: total national income rises in both countries but so much income is redistributed upwards within the United States that most workers are made worse off. " See the  full essay against the logic of your "free trade" proposal. Instead of issuing more baseless rhetoric, you should read the essay from the Economic Policy Institute,

This is a disaster! We send jobs to them, they send cheap products back to us. We lose jobs, they gain income. But on net, the savings from lower priced products do not match the loss of income from lost jobs, and the resultant depression in wage growth. We lose. It's that simple. (See the report, The Middle-Class Squeeze, page 9 to confirm that price increases have outpaced consumer price decreases.) Workers' average weekly and annual income have decreased by more than almost 4% since 1964 (see .stlouisfed link below). Working age families' median income has increased by 8% since 1979, while average disposable income has increased by 80%, see here and here. ( is a disaster, clear and obvious. See the Federal Reserve graph and convert for inflation:

Here is the Federal Reserve graph on the current account balance (foreign trade balance):
Dean Baker states, " This is truly remarkable since 

the $500 billion plus annual trade deficit (@3 

percent of GDP) is the main cause of the 

economy's weakness and continued high 


See here. 

Not since the early 1980s have we had a nearly balanced current account (foreign trade balance). G. W. Bush pushed the record foreign trade imbalance to the lowest limit, $858 billion in 2006. Today the trade deficit stands at $521 billion. When money leaves the country in foreign trade, workers' incomes drop. That $521 billion, in part, would have gone into workers’ income. Since 1980 we have been shipping money off-shore, like foreign aid, to cheaper labor markets. The wealthiest in all nations have become even wealthier, the poor workers not so. It’s a class war, and you are on the wrong side, the side of the world’s super-ultra-extremely-rich. You are advocating a continuation of this negative reality for American workers, whose wage income has declined since 1964 while total income has nearly tripled! 

Thank you for your e-mail in which you support the TPP, but please go back and do some real analysis. You are closer to a fantasy about trade than truly understanding it. I can help you understand this better if you would just ask for some further info I have available.