Tuesday, May 20, 2014

Secular stagnation part 2

         Another reason for the current secular stagnation is bad trade policies. During the late 1990s, NAFTA had been recently signed. Since then, trade between the the participating countries has surged, although in part this is due to growth in these economies.  A huge increase in trade with China also caused economic growth. In 1995 trade between the U.S. and China amounted to about 57 billion dollars. In 2000, it was about 116 billion dollars. Total U.S. trade grew from 1.3 trillion dollars in 1995 to about 2 trillion in 2000, and average of about 26% a year. It remained stagnant during the recession of 2001 to 2003. In 2004 it amounted to about 2.3 trillion dollars, and grew to about 3.1 trillion in 2007, a slightly larger increase per year. However, since the end of the last recession trade has slowed, in part due to slower growth,  but also due to more trade restrictions, most importantly among the G-20.

             NAFTA, which was signed in 1994, is outdated and needs to be updated.  The greatest gains occurred earlier in NAFTA's lifetime, the late 1990s, and the positive effects have wained over time.  One way to improve NAFTA would be to strengthen infrastructure along the U.S.-Mexico border. According to a U.S. Chamber of Commerce report on U.S.-Mexico trade failing to update current infustructure and build new infrastructure would put efficiency and economic growth at risk.

         Allowing the U.S. to export natural gas would also be helpful, since it would bring in greater profits for natural gas companies, since in Europe natural gas prices are higher than in the U.S. Additionally, it would help wean  Europe off Russian gas, thus allowing greater sanctions by the U.S. and Europe over the crisis in Ukraine against Russia.

     The deals currently being discussed with the Transatlantic Trade and Investment Partnership(TTIP) and the Transpacific partnership(TTP) by many estimates would add $200 billion to the United States annual output. The TTP, which is currently being negotiated would encompass 800 million people and 40% of the world's trade. It would be composed of nearly every Pacific Country except China, Indonesia, and Russia. The TTIP would be between the United States, and E.U. The two economies in 2012 accounted for about 33 trillion dollars in GDP, or about 46% of the world's 72.5 trillion dollars. These two trade pacts cover over 63% of the world's GDP.

       The president has been supportive of both initiatives, but congress has blocked them, especially Harry Reid. Democrats in congress, as well as some Republicans, fear job losses in the U.S. as well as political retaliation among their constituents. Rather than face up to big issues, both parties have tried to rally their base. Here are some examples of issues that parties have focused on to rally their base.  The democrats have used the 77 cents catch phrase on how much women make compared to men on average. However, women work less hours, are in higher paid professions, and do more dangerous jobs. Minimum wage has also been a hot topic for the left, despite uncertainty on how positively a minimum wage raise to $10.10 would help the economy, if at all. Republicans have  focused solely on The Affordable Care act in many instances, which although is problem, and potentially a large one, is not as urgent as some other issues, such as unemployment and low workforce participation(although the law encourages the later). Benghazi has also been raised up yet again recently, despite the fact that it occurred nearly two years ago. Although the president may not have been completely honest about the situation, it is insignificant compared to other problems facing the country, and politicians have lied about much worse things. 

   Rather than focus on partisan politics, the United State's federal lawmakers should focus on issues that can stimulate the economy and bring long term job growth. Alas, it appears that neither party is going to do this anytime in the near future. 













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