Heading toward Hoover?
"When I think back of all the crap I learned in high school, it's a wonder I can think at all." — Paul Simon
Like so many of you, I often turn to music, usually Sinatra, for inspiration, but for what I fear might happen after the mid-term elections, this old lament of "Rhymin' Simon" is most appropriate.
What nonsense do I speak of? The assertion, which is relevant today, that Herbert Hoover was a laissez faire president who did nothing to address the Great Depression while people suffered. They suffered, alright, but not because of what Hoover did not do. They suffered because of what he did do.
Namely, he raised taxes through the roof and set off a trade war with higher tariffs under the Smoot-Hawley Act, perhaps the most recklessly foolish piece of legislation ever enacted by Congress. And that is really saying something.
Care to guess what some in Congressant to do after the mid-terms? You guessed it, proceed with tax increases (the expiration of the Bush tax rate cuts) on both the wealthy and the middle class, and enact protectionist trade legislation.
The protectionist bill, called the Currency Reform for Fair Trade Act, has already passed Nancy Pelosi's House of Representatives. If passed by the Senate and signed into law by the President in the lame duck Congressional session that follows the election, it would enable the Department of Commerce to take currency interventions into account when determining whether a foreign trading partner's trade practices are fair.
The bill is aimed directly at China, which has been accused of dramatically undervaluing the yuan. At the risk of losing you right here, I'll avoid any further technical explanation. Suffice to say that this bill could lead to a trade war that makes Chinese goods more expensive to American consumers and, should China retaliate, makes American goods more expensive over there. Talk about lose-lose, especially for Wisconsin manufacturers that export goods to China, which now is our state's third largest trading partner, behind only Canada and Mexico.
Trade was the main topic of Gov. Jim Doyle's recent visit to China, where he promoted Wisconsin products in high-level meetings with government and businesses leaders. While our outgoing governor is forging economically beneficial economic relationships in areas like high-end manufacturing, medical equipment, agriculture, and clean energy, Congress is threatening to blow everything up.
Hopefully, cooler heads will prevail, but China's controversial trade practices don't often result in cooler heads. I realize that some of the things the Chinese do, including intellectual property theft, are aggravating, but cutting off your nose to spite your face is not an effective counter punch.
Unfortunately, there is ample political temptation to throw such a punch. In difficult economic times, foreign trade can become an economic scapegoat, and that's exactly what's happening now. According to the Wall Street Journal, a majority of Americans, 53%, now believe that trade agreements have hurt the U.S. economy despite the thousands of jobs that rely on it. That percentage was only 32% in the economically robust year of 1999.
If Democrats lose one or both houses of Congress in the mid-term election, the likelihood of such legislative brinksmanship goes up exponentially in the lame-duck session. Many people who have been voted out of office will have nothing to lose by passing more job-killing legislation, and Republicans aren't likely to have the veto-proof numbers, or the profiles in courage, to repeal the damage in 2011 or 2012. On most issues, the GOP's views are aligned with those of the American public, but it somehow finds a way to blow elections and/or governing opportunities.
I now fear that we're devolving back to 1930, and there still are plenty of clueless politicians around to make this retro nightmare become a reality.
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