U.S. GDP will grow If trade deficit drops, says economist Dean Baker
February 28, 2013 | By Andrew Kreig | email@example.com]
Washington economist Dean Baker told a National Press Club Newsmaker press conference audience Feb. 28 that U.S. trade deficit reductions deserve far more attention as a strategy for domestic economic growth.
Baker, co-director and co-founder of the Center for Economic and Policy Research, said the U.S. economy has lost $8 trillion in wealth from the economic downturn beginning at the end of the Bush administration.
"The idea that job creators are going to create jobs if we make them happy is not going to happen," Baker said. Employers are going to hire, he continued, only if they have foreign or domestic customers with money to spend.
He said that collapse of the housing bubble alone cost the U.S. economy $600 billion in lost construction and $450 billion in lost consumption.
Reducing the trade deficit is the most viable option to stimulate demand, he said. Such deficit reductions, he stressed, would stimulate job growth and the nation's Gross Domestic Product (GDP).
U.S. workers have been hit with the normalization of the payroll tax since Jan. 1, Baker noted, and they face further big drop-offs from the sequester budget cuts scheduled to begin March 1. The Congressional Budget Office has estimated that the sequester will force the loss of 750,000 jobs.
"I know everyone's thinking about the sequester," Baker said at the beginning of his talk. However, he said his topic -- trade deficit reductions -- was highly relevant to the overall goal of a strong economy.
He outlined four methods to lower the value of the dollar, thereby reducing the current trade deficit of 4 percent to what he described as an optimal rate of zero: 1) negotiations; 2) taxation of foreign central bank earnings; 3) tariff retaliation; and 4) intervention in currency markets.
Opponents of his proposal, he said, include the Obama administration -- primarily because of pressure from large manufacturing companies and financiers that rely heavily on exports. Opponents also include the drug, software, and the entertainment industries, he said, and U.S. professionals who enjoy cheap travel options abroad.
Baker said that proponents of what he called "weak dollar" policies to foster greater domestic production face a public relations problem because "weak" policies sound unpatriotic or otherwise objectionable.
Baker recalled advice on that point from former U.S. Sen. Fritz Hollings, a Democrat from South Carolina who showed his shrewdness by repeatedly winning re-election before his retirement. Hollings once pulled Baker aside after a Senate hearing to urge him to call his proposal a "competitive dollar," a term Hollings thought more politically appealing. But the traditional usage continues.
Baker said labor unions are major advocates of the policies he proposes. He said his plan could create "millions" of additional jobs in total, albeit with some losses in certain sectors.
Major media outlets frequently cite Baker in economics reporting. His latest book is "The End of Loser Liberalism: Making Markets Progressive." His blog, "Beat the Press," features commentary on economic reporting. In addition, he writes a weekly column for the Guardian Unlimited (UK), the Huffington Post and TruthOut.