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Guest commentary

Protectionism is result, not cause, of unemployment

Chuck • Kelly • November 28, 2010

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Apologists for America's wealthy and powerful have convinced voters that tariffs and governmental protections of our nation's industries and their workers are bad for the economy. They blame the Smoot-Hawley tariff and progressive economic policies of the 1930s for the Great Depression, despite the fact that the stock market crash occurred in 1929.

They deliberately mistake effects with causes. Tariffs did not cause the loss of jobs in the U.S. in the 1930s. Quite the opposite. A bad world economy, the disastrous loss of jobs and civil unrest led to tariffs. Desperate governments felt forced to act in the best interests of their workers — versus their investors — for a change. Protectionism was the result of the main cause of the Depression: too much money in too few hands, and tapped-out world consumers.

The same sequence is happening today. Growing unemployment and civil disruptions across the developed world are resulting in currency wars between countries that are trying to protect the few labor intensive industries they have left. In a desperate measure to stimulate our own economy, the U.S. is trying to devalue its currency, which would make its products cheaper on the world market. In other words, we're beginning to do what China has been doing for years.

China has been buying dollars, 15 billion to 30 billion a month, thus raising the value of the dollar relative to other currencies, and effectively imposing a 12 to 24 percent tariff on American exports. The benefit to China — when combined with its low-wage workers — is a 10 percent growth rate and a booming economy. When China uses currency manipulation, subsidies and its low wages to gain industries and jobs, it's at the direct expense of America's workers, and a windfall to the world's speculators who have invested in China.

Result: a rising stock market in the U.S., and middle- and low-income workers who are losing their homes and standard of living. The growing consensus on Wall Street is that the stock market will continue to thrive for the short term, but the weakened dollar, chronic unemployment, and rising commodity prices (because of developing nations' demand), will eventually cause rampant inflation and an economic disaster for the U.S.

When disaster hits, you can count on spin-doctors for the anti-government, pro-corporate advocates — who caused all this to happen — to blame the abandonment of free market principles as the cause. (They define a free market as one in which corporations are free to locate in any country with low wages, few or no worker protections, and few environmental protections.) As memories fade in the future, they'll do their best to convince voters that defensive U.S. economic actions — such as currency manipulation and tariffs to protect jobs against low-wage nations — caused the disaster, instead of what has been happening from 1980 to today.

We've gone through three decades of rising stock markets and stagnant or declining wages. Billionaires are proliferating, corporations are flush with cash and gobbling each other up, the middle-class is declining into oblivion, and the poor are becoming increasingly desperate.

The cause of the Great Depression wasn't a shortage of money in the hands of investors; it was a shortage of purchasing power in the hands of consumers. Same is true today. The top 2 percent of Americans — but especially the top one tenth of one percent of Americans — have become a new class of royalty.

They're maintaining their status by investing money in the low-wage developing world instead of the U.S., thereby threatening the survival of domestic manufacturers that have already reduced their labor costs to the bare bone. These are the same people Republicans and Blue Dog Democrats want to give tax breaks to, under the absurd pretext of reducing the deficit by stimulating investment.

It's time to face a distasteful reality. American investors, as they did in the 1930s, have stopped creating new, well-paid jobs in the U.S. Not only that, they've now become a definite threat to our economic survival by aiding, and profiting from, our low-wage competition from abroad.

Just as it did between 1932 and 1947, it will be up to our federal government to create jobs — at least until the economy recovers to the point where American consumers are making the decent incomes that attract investment in this country. It also will need to protect new industrial jobs from low-wage competition, as it did for most of the past century when our country led the world, both economically and in industrial production.

Charles M. Kelly is a retired management consultant living in Burnsville and is author of The Destructive Achiever; power and ethics in the American corporation and Farewell Fantasyland; time for economic and political reality. He can be reached at

Return to Kelly's home page, In Defense of Democratic Capitalism

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