Tuesday, March 3, 2015

Republicans Barking up the Wrong Tree On Trade and Money

The Republicans want to give the President fast track authority or what is also called Trade Promotion Authority (TPA). The Republicans also want Congress to have more oversight over the Fed. For a party that wants to limit the power of the President and the other party, these are very odd policy preferences. It is just fine to want more free trade and better policy from the Federal Reserve, but it seems to me they will get neither. Better to leave things as they are – at least until Republicans have more power and control.

Since the NAFTA in 1994 the US has signed Free Trade Agreements with 10 countries and one with Central America countries. Only three of the agreements – with Panama, Colombia, and South Korea – were signed during Obama’s terms of office. None of them amounts to more than a pile of pinto beans.  Even more interesting is that the so called Doha Round otherwise called the Big Momma of Free Trade Agreements has gotten nowhere. The World Trade Organization brings together 157 countries with the goal of reducing trade barriers and increasing world trade. The talks for the latest round of negotiations started in 1997 and a framework was finally agreed in in 2004. Yet despite continued work and much talk there has been no agreement. I have not seen any selfies of the President pushing for the completion of Doha.

In short, the President nor anyone in his party has a burning desire to consummate a chicken soup or a real free trade agreement. As in many other policy areas it is beneficial for a politician to say they favor freer trade, free trade agreements, and Mother Theresa but giving President Obama more freedom to negotiate a free trade agreement is like giving him authority to reject Islam in a mosque. It just ain’t gonna happen.

And Republicans ought to be smart enough to know that any free trade agreement that Obama supports will be something repugnant to most Republicans. One reason is that we are talking about Obama, the same guy they disagree with on almost everything! Another reason is so-called side-agreements. It is one thing to get a country to lower its trade barriers so that US goods are more easily sold there. But it is an altogether other thing when we have to reciprocate. Is Obama really going to advance an agreement that ends up reducing jobs of US steel workers? More imports from say China is always met with howls from Democrats about US jobs lost, environmental damage, and unfair practices of egg drop soup manufacturers. Addressing all the social and other collateral damages of a free trade agreement generally makes them impossible to approve and afford. Bill Clinton was able to escape many of these extras or else NAFTA never would have been successfully approved. Any FTA that the Democrats promote will be one that Republicans will kill or vice versa.  So why give Obama the power to move forward? 

Finally, I cannot image a worse time for countries to agree on trade. The EU is economically weak and its member countries are at odds with each other.  Asia is not exactly a love fest either. How about getting Putin, al-Assad, and Ukraine to sit at a free trade negotiating table? Worse, the US dollar is rising in value while most other countries are seeing currency depreciation as an important tool of demand stimulation. If Obama’s people harp on anything – it is how unfair foreign currency depreciation is to the US. So we will begin trade negotiations with the US wagging its finger at China, the EU, Brazil, and many other countries. Is this really the way you want to start a free trade negotiation? I don’t think so.

Larry take a big swig of JD. This gets us to proposals to shackle the Fed. After all we know the Fed is just a front for numerous conspiracies forged by rich people. Or else it is a liberal lapdog. But please think a moment, my legislative friends. Are you serious about having our democratically elected representatives have more supervisory powers over the Fed? These duly elected representatives are the same guys and gals who think that the best way to run a government is to shout at each other. If that doesn’t work then they shut down the government. Do we really want to give those guys the power to decide about monetary policy each month?

This is what is wrong with Republicans today. There is plenty to do without thinking up extraneous things. Giving President Obama fast track authority will either backfire or end up doing nothing. Giving Congress more power over the Fed is like giving the keys to the inmates (no insult intended to real inmates).  

10 comments:

  1. I would not give Obama authority to do anything. However, if our politicians would take a few moments to be the leaders we expect they would realize we need a real trade policy. As one who exports 50% of their product made in the USA I can assure you there is no comprehensive plan.

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    1. Thanks Jim. Free trade agreements are signed because all signatories believe they will be made better off. This is much easier believed in good times. These are not good times and I cannot imagine any politician would really favor freer trade today. E.G. Europe's unemployment rate is more than 11%. Are they going to open up to more global competition?

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  2. Larry, as initially envisioned by the group of bankers on Jekyll Island many years ago, the Fed would be a "tool" to allow Congress better oversee the economy...wink, wink, nod, nod. Now, Congress wants to assert itself by auditing an organization which it has merely nodded to since 19 ought whatever. It isn't just the Republicans who have abdicated their economic responsibilities. The Dems have played a much larger part and used the Fed to cover their backsides. Personally, I don't have a problem with more congressional oversight. The problem I see is that, too often, oversight turns into regulation. We don't need more of that.

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    1. Fuzz, that is an oversimplification of a very long story. The Fed is the US national bank. Virtually every country has one. The thing that distinguishes the FED and a few others is so-called independence. That means there is a possibility that monetary policy will be mostly technical and not political. This suggestion for more regulation simply means less independence and more political tinkering. If you think "regulation" is too much now, then just wait til Congress gets even more power. By the way, the Fed is already audited by Congress and the Fed chair is grilled publicly twice a year by Congress. Greenspan used to use those occasions to lecture the government on their deficits and debt. I am not sure who was auditing whom.

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  3. http://www.ftportfolios.com/Commentary/EconomicResearch/2015/3/4/dont-audit-it-reign-it-in

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    1. The above link from Fuzzy is an article by Brian Westbury relevant to the topic of Fed independence. Thanks Fuzzy.

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  4. He agrees with me on the oversight thing.........or maybe it's the other way round.

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    1. I think he agreed on the need for Congress to oversea the Fed's balance sheet and things like QE. I respectfully disagree with Brian on that one. I don't like the Fed's policy and balance sheet but getting Congress involved would only make the unwinding that much more difficult.

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