Wednesday, October 28, 2015

The Future of NAFTA -- Is There One?

NAFTA is now 20 years old. Has it been good for the three countries involved: the U.S., Canada, and Mexico? Has it led to an improvement in the living conditions of the majority of persons living in each of the countries? Can any productivity improvement in the three countries be credited to the effects of NAFTA? These were proponent claims and promises at the time. Are these still the hoped-for benefits 20 years later?

One opinion: "NAFTA brought neither the huge gains its proponents promised nor the dramatic losses its adversaries warned of." (see reference 1)

Another: "Growing trade deficits with Mexico and Canada after NAFTA took effect reduced (U.S.) employment in high-wage, traded goods industries, resulting in a substantial loss of wage income for such workers. This contributed to growing inequality in wages and falling demand for workers without a post-secondary education, males in trade-related production, and minorities.....NAFTA has also hurt workers in Mexico and Canada in many different ways, as documented elsewhere in this report. Without major changes in NAFTA to address unequal levels of development and enforcement of labor rights and environmental standards, continued integration of North American markets will threaten the prosperity of a growing share of workers in the United States and throughout the hemisphere." (see reference 2, dated Sept. 2006 ).

So, if NAFTA was bad for the majority of people in each of the countries, then who was it good for? And, was it truly bad, or would continued protectionist and (here-and-there) isolationist economic policies in each of the countries have made matters even worse? 

Proponents argue that because NAFTA created rules for safer, border-crossing capital investment, so dollars and pesos could follow opportunity and spread wealth. Critics counter that the improved investment freedom increased instability for currently-employed workers, and shifted economic power and quality-of-life influences away from governments, and square into the hands of multinational corporations. They further counter that most of the wealth did not make its way to "the people," but only to the upper-most wealthy.

And so, the arguments continue.

But to simply matters a bit, NAFTA is a trade agreement in a corner of the world where political boundaries have become secondary to the hopeful benefits of economic cooperation between three adjacent and friendly countries. On the surface, the notion sounds like a fine one. 

However, today, multinational corporations are much more adept than 20 years ago at ferreting out opportunity and jumping continents to develop workforces, industries, and markets. Does that make NAFTA less relevant now than in 1993 as far as multinational corporations are concerned? Maybe so.

But NAFTA also helps define North America as a place where the rules are clear: Your money is safe; we're not a manufacturing dumping ground for the world; there are definite limits to the exploitation of labor and clear requirements for workplace safety; our countries respect each other and won't be unfairly played against each other.

NAFTA has its troubles. The EU even more and bigger troubles. But both are basically sound and good examples of multinational cooperation and of what someday "could be." Both are works in progress in hopes of very long-term benefits.

Some say NAFTA hasn't proven itself worthwhile.  Maybe 20 years isn't quite enough time.

reference 1:

reference 2: (page 24)

Thursday, October 15, 2015

The Next Recession

When will we have the next recession?  Nobody really knows for certain.  The better question may be how will be combat the next recession?  The Federal Reserve cannot reduce interest rates to a below zero percentage rate.

Some presidential candidates have suggested lowering corporate taxes.  That would definitely help by ensuring companies had more cash for expansion, but many politicians will not touch this for political reasons.  Also, it still may not result in enough job creation to offset the economic downturn of a major recession.

Does this mean that the next recession will be longer and more extensive than normal?  If any recession does have a normal time period, the answer may be yes.  The tools we use to bring an economy out of the economic downturn are already the being employed to prop up or subsidize the current economy.  So, what happens when this economy takes a turn for the worse and where would it be it we were not already “stimulating“ it?