Economy 1991

April 21, 2008

The average income of the poorest fifth of the Pennsylvania families decreased by $1,281,
from $20,241 to $18,980. The New York Times

Restating The Problem

The Establishment continues to fiddle and wring its hands
while America burns.

The first signal that the economy was in trouble dates from
the summer of ’89 when an advancing growth rate turned into a

Only prejudiced politicians would dare to claim the economy
is not in a recession.

President George Bush said in November that the state of the
economy “is not recession,” and “does not meet the definition of
recession. The fundamentals are getting better. We’ll be coming
out of this.”

Vice-President Dan Quayle, “the country is out of the

Shades of Hoover banalities.

Their meaningless jaw-boning doesn’t fool the people. Few peo-
ple perceive that the Bush Administration has the foggiest notion
as to how to revive the economy. And the same perception goes for
the Democratic Congress.

People realistically sense that things cannot get better in
the foreseeable future. Boarded-up shopping centers, see-through
office buildings confirm that it will take 11 years to absorb the
building glut of the ’80s. The construction industry is dead.

Furloughs, layoffs, unemployment, deficits dominate the busi-
ness pages.

The financial feeding frenzies of the ’80s have lead to eco-
nomic starvation in the ’90s.

The resemblances to the years before the Great Depression are
striking–wild land speculation a la Sinclair Lewis’ Babbitt
followed by a bust; wild stock speculation based on optimistical-
ly high price/earnings ratios; wide-spread bank failures.

Certainly the America of the ’90s is not the America of the
’20s. But… Apples now cost 60 cents, in ’33 a nickel.

A single point of light

Every one I talk with, businessmen, professionals, academia,
former manufacturers, the vox populi, agrees that America must
restore its manufacturing base in order to revive its economy.

This answer is simple, and comes from no less a super patriot
and advocate of free enterprise than H. Ross Perot!

Bring manufacturing jobs back from overseas!!

“I’m tired of excuses. I want the jobs to stay here; I want
the TV’s made here. No excuses. Let’s go back to basics. Stop
acting like little boys in a schoolyard fight. Link arms. The
nations’s at risk.”

There is no other star shining on the horizon.

More realistic views

Alan Greenspan, chairman of the Federal Reserve Board, and
usually a slave of the administration, says that the economy is
“demonstrably sluggish.”

With our current growth rate of 2.4%, the forecast is for
more unemployment using Okun’s law. (This “law” states that the
economy must grow at a rate of 3% just to keep the unemployment
rate constant).

Leading Down

For September, 1991 the Index of Leading Indicators–a
predictor of the economy six to nine months in advance–declined,
the first drop in eight months, prompting gloomy comment from
several economists. Stagnation is here.

Lawrence Chimerine of the DRI-McGraw-Hill forecasting service
stated that even the five positive indicators (six negative) did
not “show any sign of strength right now. Overall, it’s a flat
environment. Not only is income falling, but everyone else is
worried about their jobs, and that’s a devastating combination.”

Allen Sinai of the Boston Company,”The next six months do not
present a pretty picture for the economy at all. Rather than a
recovery, it’s looking more like a double dip, or the extension
of a recession that might never have ended.”

Laurence H. Meyer and Associates, St. Louis, Missouri fore-
casting company said “It’s clear we’re flirting with a double
dip. The economy has lost any sense of upward momentum. It’s
moving sideways.” (Quotes from NYT Nov. 2, 1991)

Using current dollars, the annualized Gross National Product
rate after nine months in 1991 is $5.671 trillion, off from a
$6.1 trillion rate in June.

And if the GNP is falling in the last six months of the year,
historically the boom part of the year, as people spend during
the holiday season, where is it going after January 1st?

Layoffs Up

Friday, November 2, 1991 the dollar plunged in heavy trading
to its lowest level in months, based on reports that the economy
continues to decline. Fact is that the dollar is 40% below its
1985 peak. Factory and construction workers continue to be laid
off in huge numbers.

Allentown, Pa.’s Director of Community Development Don Bern-
hard was reported by the New York Times November 2nd as saying
“There’s a growing sense that more people are out of work than
the figures indicate. Those people are falling off the table.”

The figures for October are 8,600,000 people unemployed, for
a rate of 6.8% of the labor force. Of these, only 3,500,000 were
collecting unemployment benefits. Ergo, 5,100,000 unemployed are
without wage income.

In a desperate attempt to compete with cheap overseas labor,
there are growing, publicized enterprises in the large cities
using Asian laborers in virtual sweatshop conditions.

The Millennium and Mexico

“Free trade” is a dream for the millennium–and we are
actually still at 35 AD.

How Bush expects American workers at say $10 an hour–and
$20,000 a year is just a bit above the poverty level–to compete
against Mexican workers at 38 cents an hour is incredulous.

Does Bush really believe that American workers can achieve
such a high level of productivity that a level playing field is
one hour for the Americans, 27 hours for the Mexicans?

I guess this is what Carla A. Hills, the U.S. negotiator for
the proposed North American Free Trade Agreement calls “a issue
of vision.”

Adding 88 million Mexicans to the American work force–equal
to a third of our total population–may be a great deal for the
Mexicans living in poverty on beans and corn in an abode hut
without running water or sewerage.

It will be an unmitigated disaster for the United States.

President Washington on Fair Trade

President George Washington may not have been an economist,
but he still makes sense 200 years after giving his Farewell

“Harmony, liberal intercourse with all nations are recommend-
ed by policy, humanity, and interest.

“But even our commercial policy should hold an equal and
impartial hand, neither seeking nor granting exclusive favors or
preferences; diffusing and diversifying by gentle means the
streams of commerce but forcing nothing; establishing with powers
so disposed, in order to give to trade a stable course, to define
the rights of our merchants, and to enable the government to sup-
port them, conventional rules of intercourse, the best that pre-
sent circumstances and mutual opinion will permit…

“constantly keeping in view that it is folly in one nation to
look for disinterested favors from another.”

Obviously, treating Mexico as an equal trading partner enti-
tled to equal treatment as American merchants is not what Wash-
ington had in mind.

Nor is granting “most favored nation” status to every country
in the world, including China with its prison labor making tex-
tiles for export to the U.S.!

Free trade is not free. It has a price. And the price is the
bankruptcy of the American economy.

George Washington on the Federal Deficits

As for our monumental federal debt and growing, Washington
says “As a very important source of strength and security, cher-
ish public credit. One method of preserving it is to use it as
sparingly as possible, avoiding occasions of expense…avoiding
likewise the accumulation of debt, not only by shunning occasions
of expense but by vigorous exertions in time of peace to
discharge the debts…not ungenerously throwing upon posterity
the burden which we ourselves ought to bear.

“Bear in mind that toward the payment of debts there must be

The Challenge

With the Congressional Budget Office now projecting a record
budget deficit of $345 billion for the current fiscal year–which
only started October 1st–the President and Congress must act to
avert continued economic disaster.

Under the circumstances, more “pump-priming” public spending
is asinine. We are already pouring $345 billion deficit dollars
into the economy, 6% of the GNP, and the economy is going
nowhere. The IRS collected $1.1 trillion in ’90; to balance the
federal budget would require an increase in income taxes of 31%.

The tired old Shibboleths

Standard remedies like pouring more money into the economy by
pushing out reserves and pushing down interest rates and a public
jobs program didn’t work to end the Great Depression, and are not
going to work now with people’s purchasing power depressed by
lowered incomes, furloughs and layoffs. As the former chairman of
the Federal Reserve Board William McChesney Martin said, this is
like “pushing on a string.”

Tax cuts will hardly help either. For those employed, a few
more Christmas baubles perhaps. For those furloughed and the un-
employed, a zero income equals an already zero tax rate.

Both corporations and consumers are head over heels in debt,
drunk on debt; it will take years for us to sober up. With credit
card rates of 20%, junk bond rates of 15-18%, current purchasing
power and profits are being sopped up just to service past debts.

From being the biggest creditor nation in the ’50s, we have
degenerated into the world’s biggest debtor nation.

And as Washington said, debts must be paid.

The Way

2000 years of chaos, conflict and competition in western Eur-
ope will end in 1992 with the advent of the 12 nation European
Free Trade Association, with 7 additional affiliated western Eur-
opean countries.

This association will have common rules on corporate laws,
mergers, anti-trust laws, labor laws, technical standards, envi-
ronment, education, consumer protection, values, standards of
living, ethnic background.

Deliberately omitted from membership are the eastern European
countries, precisely because they do not share the same economic

Also deliberately omitted is free trade on agricultural pro-
ducts. Sounds reasonable to me. A casus belli has been a lack of
access to food to adequately feed one’s own people.

This creation of a regional trading bloc of equal partners is
correctly the way to go, and should be emulated by the Asian
tigers, the other Asian countries, Africa, Central America, South
America, etc.

The proposed marriage of the United States, Canada and Mexico
is definitely not the way to go; Mexico is not an equal partner.

Early Fair Trade

The Fair Labor Standards Act of 1938 was an attempt to set
national standards in the world’s largest integrated trading area
to achieve an “even playing” field domestically.

One result of this effort has been to raise the standards of
labor and living in the southern states closer to those in the
northern states.

The economic calamities brought upon the United States by our
“free trade” policies demand the extension of our domestic fair
labor laws to the international arena, i.e. promulgation of an
“International Fair Labor Standards Act” to achieve for United
States workers what has been achieved in Europe by the EEC in
requiring its component member states to adhere to minimum
common standards for their workers.

As a corollary to this international labor standard, we
should enact trading laws that would require weighted tariffs on
imports from all those countries that do not conform to the
international fair labor standards.

Merry Christmas

Jay Mazur, president of the International Ladies’ Garment
Workers Union, in a letter to the New York Times published Octo-
ber 30, 1991, described the “growing pools of Asian laborers in
cities like New York” and the documented use of such workers in
the growing efforts to recreate the sweatshops of the past. He
further quotes Department of Commerce statistics to show that im-
ports continue to increase their share of the domestic apparel

Specifics – a Trade Bill from Congress

“We have to tighten up our trade laws. We tend to bend over
backwards to be fair. No other country in the world is as
liberal. The biggest protectionist in the world is Japan. It’s
time to get tough.” –G. Lee Thompson, Chairman, Smith Corona
Corp., New Canaan, Conn. (NYT Nov. 5, 1991)

We operate under the Fair Labor Standards Act of 1938; and a
myriad of other laws to promote fairness for management, labor,
the consumer, the environment.

Congress must pass a law stating that we will only allow im-
ports without tariffs from countries such as the European Common
Market that subscribe to the same standards of production that we
demand of ourselves.

All other countries will be charged tariffs and/or have
quotas imposed based on their deviation from this standard.

Certainly part of this deviation is their payment of a pre-
vailing wage that only permits a living standard of a bowl of
rice and a one-room shack.

And in the extreme case of textiles made by prison labor as
is the case with some Chinese goods, an outright ban.

We have sanctions against Cuba and other countries. We must
have sanctions against goods made by slave labor, or the
equivalent of slave labor.

The European Community has shown the way by creation of a
regional trading bloc comprised of equal partners.

Our dire economic straits demands that we follow suit, that
we create a new economic world order, one in which we will trade
on a “level playing field” with all, based on standards of
equity and fairness.

A standard in which all may prosper, and many pull themselves
up by their bootstraps.

— 30 —

Sources: The New York Times
The Wall Street Journal


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