For decades Congress has run large budget deficits–“paid for” by the loss of working-class jobs. Paul Volcker–the esteemed Fed chairmen who finally got U.S. inflation under control in the early 1980s–has mentioned this repeatedly; the trade deficit he discusses destroys manufacturing.
When the government runs large budget deficits, it eats away the national savings. It and the private sector must suck savings from abroad–possible only if Americans import more then they export; otherwise there aren’t any spare dollars abroad to lend. Foreigners must obtain dollars before they can lend them.
Government Subsidy of Imports
This trade deficit happens automatically: foreign capital flows into U.S. Treasuries, pushing up the value of the dollar; undervaluing imports, a strong dollar punishes U.S. domestic goods. Living standards rise from cheap imports–an illusion supported by unsustainable borrowing.
Thus U.S. jobs flow abroad, taking advantage of this government subsidy of foreign goods. An unending flow of migrant workers flood the country; overvalued dollars are sent back to home countries–cashing in on the same subsidy.
“Illegal” immigrants are not responsible for U.S. economic problems; they are a symptom. The solution to the immigration problem is to balance the budget and grow the economy.
Balancing the Budget
If an unbalanced budget creates such problems–increasing imports, decreasing exports, increasing undocumented immigration, making U.S. domestic goods unable to compete–why not simply balance it? For most laymen this is very simple: cut spending or raise taxes.
But what spending? Most of the federal budget is devoted to defense, Medicare, and Social Security. All are “untouchable,” and all are highly popular. What about raising taxes? Due to demographics, this is literally impossible–taxes cannot rise high enough to cover the shortfall.
The only solution is spreading the pain evenly–cut defense, cut Medicare, cut Social Security, and raise taxes–all at the same time. We can no longer afford to live beyond our means, and the working class deserves better then seeing their livelihoods and futures taken by U.S.-subsidized foreign countries–who really can’t be blamed for doing so.
American-style free trade promotes mutually-beneficial economic growth. After decades of advocacy, our model is now dominant on the global stage–world leaders are even now working to achieve it.
But budgets must be balanced; massive government borrowing unbalances trade and reduces its welfare benefit. Governments on the gold standard knew this; they either balanced their budgets, or trade imbalances would force them off the gold standard.
Mutually beneficial economic growth will return, as nations across the world–including our own–shrink budget deficits and eliminate trade barriers and unfair subsidies. There is no reason to fear free trade.