The Free Trade Record

The U.S. government is hard at work negotiating the Transpacific Partnership Free Trade Agreement with eleven other governments.  It continues to defend this and other free trade agreements with claims that they generate exports and jobs for U.S. workers.

That the historical record demonstrates the falseness of such claims seems not to matter to the media or political and economic leaders.

For example, here is what the Office of the United States Trade Representative had to say upon completion of the U.S.-Korea Free Trade agreement:

The entry into force of the U.S.-Korea trade agreement on March 15, 2012 means countless new opportunities for U.S. exporters to sell more Made-in-America goods, services, and agricultural products to Korean customers – and to support more good jobs here at home.

However, the Eyes on Trade blog examined the data and found that:

Two years after the implementation of the U.S.-Korea Free Trade Agreement (FTA), government data reveal that the Obama administration’s promises that the pact would expand U.S. exports and create U.S. jobs are exactly opposite of the actual outcomes: a downfall in U.S. exports to Korea, rising imports and a surge in the U.S. trade deficit with Korea. Using the administration’s export-to-job ratio, the estimated drop in net U.S. exports to Korea in the FTA’s first two years represents the loss of more than 46,600 U.S. jobs. . . .

Contrary to the administration’s promise that the Korea FTA would mean “more exports, more jobs”:

• U.S. goods exports to Korea have fallen below the pre-FTA average monthly level for 21 out of 22 months since the deal took effect. See graph below.
• The United States has lost an average of $385 million each month in exports to Korea, given an 11 percent decline in the average monthly export level in comparison to the year before the deal.
• The United States lost an estimated, cumulative $9.2 billion in exports to Korea under the FTA’s first two years, compared with the exports that would have been achieved at the pre-FTA level.

More specifically, “U.S. average monthly exports to Korea have fallen in 11 of the 15 sectors that export the most to Korea, relative to the year before the FTA (see graph below). . . . Ironically, many sectors that the administration promised would be the biggest beneficiaries of the Korea FTA have been some of the deal’s largest losers.”

And of course this is just the trade record.  All free trade agreements also have multiple chapters that have nothing to do with trade as commonly understood but are designed to block possible future government interventions that might limit corporate profit-making opportunities.  See here and here for examples from the U.S.-Korea Free Trade Agreement.

Since agreements like the Transpacific Partnership Free Trade Agreement are first and foremost about promoting corporate interests, the government’s lack of interest in highlighting the historical record should come as no surprise.

The Big Government Myth

This chart comes from Chuck Marr at the Center on Budget and Policy Priorities.  As Marr explains:

The United States is a relatively low-tax country, as the chart [above] shows.  When measured as a share of the economy, total government receipts (a broad measure of revenue) are lower in the United States than in any other member of the Organization for Economic Co-operation and Development (OECD), even after accounting for the modest revenue increases in the 2012 “fiscal cliff” deal and the taxes that fund health reform.

The Way Forward

Floyd Norris, writing in the New York Times, summarizes key economic trends as follows:

Corporate profits are at their highest level in at least 85 years. Employee compensation is at the lowest level in 65 years.

The Commerce Department last week estimated that corporations earned $2.1 trillion during 2013, and paid $419 billion in corporate taxes. The after-tax profit of $1.7 trillion amounted to 10 percent of gross domestic product during the year, the first full year it has been that high. In 2012, it was 9.7 percent, itself a record….

Before taxes, corporate profits accounted for 12.5 percent of the total economy, tying the previous record that was set in 1942, when World War II pushed up profits for many companies. But in 1942, most of those profits were taxed away. The effective corporate tax rate was nearly 55 percent, in sharp contrast to last year’s figure of under 20 percent.

The Commerce Department also said total wages and salaries last year amounted to $7.1 trillion, or 42.5 percent of the entire economy. That was down from 42.6 percent in 2012 and was lower than in any year previously measured.

Including the cost of employer-paid benefits, like health insurance and pensions, as well as the employer’s share of Social Security and Medicare contributions, the total cost of compensation was $8.9 trillion, or 52.7 percent of G.D.P., down from 53 percent in 2012 and the lowest level since 1948.

Benefits were a steadily rising cost for employers for many decades, but that trend seems to have ended. In 2013, the figure was 10.2 percent, the lowest since 2000.

Norris’s article also includes the following chart which presents after-tax corporate profits, effective corporate tax rates, employee compensation, and changes in the S&P index by presidential term.   

Two things are worth highlighting.

First, the steady climb in the ratio of after-tax corporate profits to GDP over the Clinton, Bush, and Obama administrations.  The ratio is now at a record high.

Second, the decline in employee compensation as a share of GDP.  This ratio has tumbled to a post-Truman low.

These pre-and after-tax profit and compensation trends are no accident.  They are the result of economic policies which had as their primary goal the enhancement of corporate profitability.  These policies include:

• Corporate tax cuts
• Free Trade Agreements designed to promote the globalization of production and finance
• Financial sector liberalization
• Labor law reforms designed to weaken worker organizing and collective action
• Privatization of government services
• Cuts in and the tightening of eligibility standards for social programs
• Public sector bailouts and subsidization of private sector activities.

Unfortunately, while these policies succeeded brilliantly in achieving their goal, success has come at high social cost.  They have worsened living and working conditions for growing numbers of people as well as the overall health of the economy.

The following four charts, published by Doug Henwood on his Left Business Observer blog, offer one window on the weakened state of our economy.  The charts show the real movement of GDP, Consumption, Investment, and Government Spending through the end of 2013 relative to their respective long term trends (1970-2007).

Henwood comments:

Note how things fell off a cliff in the recession. GDP, consumption, and government spending are all about 15% below where they’d be had they continued to grow in line with their long-term trend. (The hysteria over out-of-control government spending looks ludicrous in the light of this graph.) Investment is about 25% below where it “should” be thanks largely to the housing collapse, though it’s staging something of a recovery. The other components have yet to begin closing the gap, because the recovery’s been so weak.

The economy’s weak five year expansion has existed comfortably with record profits (and a growing concentration of income and wealth) because the policies which helped to secure the latter tend, by their nature, to weaken economic fundamentals. Think tax cuts, bailouts, free trade agreements, privatization, and the like.

In short, as long as both political parties prioritize corporate profits, we can expect bipartisan support for current policies and thus a continuation of socially negative trends.  There is no way forward for the majority of Americans without a fundamental shift in priority and policies.

Overwork And Its Costs

Americans with jobs tend to work long hours. Of course, averages can be deceiving, masking the fact that some people work too much while others work too little. 

Still, the following chart from the Economist magazine makes one thing clear: on average, U.S. workers with jobs put in more hours per year than workers in most OECD countries. In 2012, only Greece, Hungary, Israel, Korea, and Turkey recorded a longer work year per employed person.

A long work year is nothing to celebrate. The following chart, from the same Economist article, shows there is a strong negative correlation between yearly hours worked and hourly productivity.

More importantly, the greater the number of hours worked per year, the greater the likelihood of premature death and poor quality of life.  This reality is highlighted in the following two charts taken from an article by Angus Chen titled “8 Charts to Show Your Boss to Prove That You Can Do More By Working Less.”

In sum, we need to pay far more attention to the organization and distribution of work, not to mention its remuneration and purpose, than we currently do.