went wrong? What to do?
ERNEST F. HOLLINGS, former U. S. senator
2010 -- After eight years of Bush borrowing and spending to the tune of
$6 trillion dollars, tax cuts and stimulus, wars and off-shoring a third
of the nation's manufacture, the voters wanted no more. But Obama gave
them even more borrowing and spending to the tune of $3 trillion, tax
cuts and stimulus, wars, and off-shoring our industrial backbone-thus,
with a fiscal crisis, Democrats always responded responsibly, instituting
the budget process in 1973, saving Social Security in 1983, supporting
Gramm-Rudman-Hollings to stop deficit spending, and in 1993 President
Clinton cut billions in spending, raised billions in taxes, taxed Social
Security, giving President George W. Bush a balanced budget in 2001 with
surpluses as far as the eye could see. But after the Bush spending binge,
President Obama made no effort to draw down deficits. He submitted a budget
calling for deficits in excess of a trillion dollars each year for ten
years. By the time Obama was sworn into office, the economy had been stimulated
$6 trillion by President Bush; household debt had stimulated another $7
trillion during the same period; and with $13 trillion stimulation, we
were still losing 799,000 jobs a month (January 2009). Obama stimulated
with 40% tax cuts for people that had stopped spending and were saving.
Stimulation was substantially spent. Stimulation saved Wall Street, the
financial houses, the big banks, and the AIG insurance company, all of
which promptly eliminated jobs and gave billions in bonuses.
President Obama just bragged on TV about creating 1.1 million jobs in
the last ten months. But the Princeton economist, Alan Blinder, estimated
long before the recession (February 2007) that the economy would lose
thirty to forty million jobs in the next ten years to off-shoring. That
means the best estimate of jobs lost is three to four million jobs a year.
Christmas always brings a gain of jobs. Assuming a gain of 400,000 jobs
in the remaining two months of this year, a gain of 1.5 million jobs a
year amounts to still losing l.5 million jobs to off-shoring each year.
The President and Congress know this. But jobs are sacrificed to keep
the contributions flowing from Wall Street and Corporate America, who
want to keep the profits flowing from China and India. The mystery is
that the free press doesn't report this.
The loss of jobs to off-shoring is not surprising. Today in globalization
it doesn't pay to produce in the United States. The United States has
the highest cost of labor, environment, and safety, plus anti-trust laws,
and someone can go or be in China and import the same article of quality
cheaper and put you out of business. That is why the banks are not making
loans for domestic production. Thus the task for the President and Congress
is to make it profitable to produce in the United States - not only make
it profitable, but develop a policy to protect investments from subsidized
off-shore production. Guess what? The United States already has such an
industrial policy on the books with its trade laws.
"Slow down, Mr.
President. Stop campaigning the country just talking jobs, furiously
bailing the economy boat with stimulation but refusing to plug the
off-shore hole in the bottom. The nation is headed in the wrong
direction on protecting the economy and paying for government. The
President and the nation can't get by two more years with this nonsense."
ago, Congress enacted the War Production Act of 1950 to make sure the
country had the production and supply of equipment and materiel necessary
for the nation's security. In 1961 President John F. Kennedy held Cabinet
hearings to determine that textiles, next to steel, were most important
to our national security. He then promulgated his 7-point program to save
the textile industry. Today in globalization, we want domestic industries
to maintain their competitiveness. But if subsidized imports make this
impossible, then only that part of the textile industry necessary to our
security, such as camouflage, parachute cloth and body armor materiel,
can be protected. We have suffered trade deficits amounting to $6 trillion
in the last ten years. President Obama should move with a 10% surcharge
on imports as President Nixon did in 1971 when the trade deficit was a
fraction of what it is today. Rather than wait for General Motors to go
bankrupt, needing a bailout, President Bush, and now President Obama,
under Section 201 of the Trade Act, should have imposed tariffs or import
quotas when General Motors was endangered. This was exactly what President
Reagan did to save Harley-Davidson motorcycles, which President Obama
is bragging about in India. Dumping laws and "Buy American"
provisions should be enforced. President Bush refused to compete in globalization
and President Obama, following his pledge to change, should enforce our
protectionist trade policy, creating millions of jobs.
What to do? President Obama can kick-start the economy and create jobs
by getting in step with the value added tax systems of 135 countries in
globalization. VAT countries can rebate at export their value added tax,
whereas the corporate income tax of the United States is not rebated.
Senator McCain's anti-VAT tax resolution was a VAT increase on the present
income tax. But Congress can actually cut taxes and receive more revenues
by replacing the corporate income tax with a 5% VAT. The 2010 estimate
for corporate income tax is $156.7 billion, whereas a 5% value added tax
raises $600 billion. Food, health, heating and cooling, and rent can be
exempted for the lower income which still leaves over $300 billion to
pay down the debt. Corporate income tax begins today at 35% with an average
payment of 27%. Reducing the tax burden on production of 27% to 5% lessens
the cost of articles for domestic consumption and, with no tax on exports,
makes it profitable to produce in the United States. It will take a year
for the IRS and business to computerize and implement a value added tax.
But we ought to move in the lame-duck session. This approach doesn't increase
taxes on personal income. But as the debt is paid down, then the personal
income tax can be reduced. With the corporate income tax cancelled, the
one trillion dollars in corporate off-shore profits can be repatriated
on condition that the profits are used to create jobs rather than bonuses.
If not, repatriated profits will still be subject to the corporate income
After the election, Rand Paul put the nation on notice that "government
doesn't create jobs." Joe Scarborough on "Morning Joe"
said there were two words for President Obama to say: "I understand."
Then Scarborough admonished: "Government doesn't create jobs."
Rand Paul and Joe Scarborough are wrong. In globalization it's not company
vs. company, it's country vs. country, and government is the main creator
of jobs. As the United States languishes, China's government is setting
the pace of competition. The United States government must compete. Globalization
is nothing more than a trade war with production looking for a country
cheaper to produce. Japan started this trade war after World War II by
closing its market, subsidizing its manufacture, selling its export at
cost, making up the profit in its closed market. This assault for market
share put General Motors into bankruptcy with Toyota #1. Then China came
with its government-controlled capitalism, giving incentives to produce,
transfer technology and research, controlled financing, labor, production,
trade, and market. Now more than ever, Henry Clay's statement on free
trade in 1832 rings true: "It never existed; it never will exist
No chance with communist control of the economy in globalization. At President
Obama's press conference after the election, the President showed his
naivete' by stating: "
making sure that we're making the investments
in technology that will allow us to keep our competitive edge in the global
economy." It is the development of technology that creates jobs.
And Silicon Valley and Intel have long since left for development in China.
The United States has a competitive edge in democratic government with
first amendment rights of speech, religion, press and assembly. But in
the global economy, China's government has the competitive edge in every
phase of the economy with its communist-controlled capitalism. Today China
has nuclear, missilery, satellites, the internet, and has quadrupled Silicon
Valley's innovation at Xi'an.
China knows how to use its economic power in diplomacy. Twenty years ago
China used is economic power to forego any hearing on human rights in
China. After the Tiananmen slaughter in 1989, the U. N. General Assembly
adopted a resolution to investigate human rights in China. But China went
to its economic friends in Africa and the Pacific Rim, and there has never
been a hearing on the resolution. More recently, when Japan held a Chinese
ship captain, China cut off Japan's supply of rare earth materials necessary
for the development of sophisticated technology in Japan. Japan promptly
returned the ship captain to China. In world affairs it's no longer the
Sixth Fleet and nuclear that has influence: "It's the economy, stupid."
But the leadership of America arrogantly thinks that the United States
is in charge. In globalization, China is in charge. We keep waiting for
China to crumble in chaos. China's leaders are not only good politicians
but students of government. They will use traumatic measures to maintain
the Middle Kingdom as they develop economically and compete in globalization.
America's trouble is that the most competitive nation in the world is
not competing; that the most productive nation in the world is not producing.
Now on his trip to India the President explains his loss in the election:
"Leadership isn't just legislation. You must persuade people, giving
them confidence." That's like the President saying he lost the middle
class vote because he didn't say "middle class" enough. Slow
down, Mr. President. Stop campaigning the country just talking jobs, furiously
bailing the economy boat with stimulation but refusing to plug the off-shore
hole in the bottom. The nation is headed in the wrong direction on protecting
the economy and paying for government. The President and the nation can't
get by two more years with this nonsense.
of South Carolina served 38 years in the United States Senate, and for
many years was Chairman of the Commerce, Space, Science & Transportation
Committee. He is the author of the recently published book,
Government Work (University of South Carolina Press, 2008).
Ernest F. Hollings. All rights reserved. Contact
us for republication permission.
Ernest F. Hollings served
the public for 56 years -- 38 years in the United States Senate and as South
Carolina's governor, lieutenant governor and a member of the S.C. House of
Today, Hollings continues
to be influential in public affairs and offers this Web site as a compendium
of current and past positions on public issues. Learn
more about Fritz Hollings.
Hollings receives French honor
France honored retired
U.S. Sen. Fritz Hollings on in 2013 by awarding him the Legion of Honor for
his World War II service. More.
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