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JULY 20, 2012 -- To understand our dilemma we must first dispel preconceived notions. A vote in the U.S. Senate for free trade today would probably secure 99 "yea" votes. Yet Henry Clay in 1836 said of free trade: "it never existed…It never will exist."
Our founding
fathers opted for controlled trade two years ahead of the Constitution
with the enactment of the Tariff Act of 1787. Protectionism worked so
well that Edmund Morris in Theodore Rex (p. 20) writes of the United
States "this first year of the new century found her worth $25 billion
more than her nearest rival Great Britain with a gross national product
more than twice that of Germany and Russia." Abraham Lincoln was
a protectionist and Teddy Roosevelt exclaimed "thank god I'm not
a free trader." The forefathers instituted an industrial policy for
the United States in 1787 and we have developed it with various trade
laws to protect the economy. The next preconceived notion is that The Declaration of Independence was a declaration against our government. On the contrary, the declaration was followed with a state system of government in the Articles of Confederation. After years of failure, the forefathers opted for a strong national government with the Constitution of the United States in 1789. We fought a bitter war against the imposition of state sovereignty to preserve the national government. Today national
politics are divided: those for government and those against government.
Those against caterwaul "the government is too big" and "regulations
are killing the economy," On the contrary, regulations or an industrial
policy is necessary to save the economy. David Ricardo's Doctrine of Comparative
Advantage has been taken over by the Doctrine of Government Advantage.
China's controlled trade predominates in globalization. To sell in China
you must produce in China. To produce in China you must surrender your
technology to China. To succeed in China, you must research and innovate
in China. China sets the competition in globalization and Corporate America
offshores our economy to China to get into the soon to become largest
market in the world. We Southern Governor's learned long ago how to carpetbag
the north for industry. Now the federal government must carpetbag China
to bring enough of Corporate America back home for a strong economy. This
takes enforcing our trade laws and beefing up our industrial policy. If President
Obama would enforce the Defense Production Act of 1950 like President
Kennedy in 1961, we wouldn't be begging Russia for helicopters for Afghanistan.
If President Obama would enforce our trade laws like President Nixon in
1971 and impose a surcharge on car imports; we wouldn't have had to bailout
Detroit. If President Obama would protect steel, motor vehicles, computers
and machine tools like President Reagan in 1984, we would have 5% unemployment
instead of 8.2%. Rather than continually threaten and talk about China
devaluing its currency, Congress should act against this abuse. This would
create millions of jobs.
Another
preconceived notion is that Social Security and Medicare are broke. They
are both in surplus. The government is broke. President Bush was given
a balanced budget in 2001 but he cut taxes, waged wars, added prescription
drugs to Medicare, bailed out and stimulated - all without paying for
them. President Bush increased the national debt or stimulated the economy
$5 trillion in eight years. Now President Obama wages wars, cuts taxes,
adds prescription drugs to Medicare, bailouts and stimulates without paying
for them adding $5 trillion to the national debt in four years. It took
the United States over 200 years to reach a national debt of $1 trillion
in 1981. Now we are adding 200 years of debt each year to the economy.
The economy is overstimulated and on steroids. Paul Krugman's $300-$400
billion in stimulation won't work. We need to get the government and economy
off steroids. The final
misconception is that we can't do anything now to pay down the debt because
the economy needs growth. Starting to pay for government will give growth.
The Corporate Tax is not rebated on exports whereas the Value Added Tax
is. The value added is not a percent of the sales price but a percent
of the difference in the cost of parts and materials and the sale price
of the finished product. 150 countries compete in globalization with a
VAT. We should replace the 35% Corporate Tax with a 7% VAT. 7% is one
half of the average global VAT and this four fifths tax cut immediately
releases $2 trillion in offshore profits for Corporate America to invest
tax free to create jobs in the United States. Since the VAT has no loopholes
we have instant tax reform. Since the VAT is self-enforcing we can cut
the size of government (IRS). Last year the Corporate Tax produced revenues
of $181.1 billion. A 7% VAT for 2011 would have produced $872 billion
in revenues. This tax cut produces billions to pay down the debt now,
creates millions of jobs and jumpstarts the economy. Senator Hollings 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 Making Government Work (University of South Carolina Press, 2008). © 2012, Ernest F. Hollings. All rights reserved. Contact us for republication permission. |
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