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Left hate object in the US: Wall Street
Photo: John Angelillo / UPI Photo / imago images
The economists of the Economic Policy Institute (EPI) work a ten-minute walk from the White House in Washington.
There they develop concepts and strategies on how the workforce in the USA can be strengthened and wealth in the country distributed more fairly.
"That is the challenge for Biden and the Democratic Party as a whole: what can be done about the loss of their base among the workers?"
You have been doing this for a long time, in 1986 the "Economic Policy Institute" was founded, among others by Robert Reich. He later became Bill Clinton's Secretary of Labor for a few years. But the institute was never really close to implementing its ideas for a left-wing transformation of the world's largest economy.
That changed with the inauguration of Joe Biden. Two of the three members of the Council of Economic Advisors used to work for the EPI, which is also co-financed by US unions. Jared Bernstein is one of them, Biden's loyal economic advisor, who is so enthusiastic about left-wing projects such as a wealth tax that reporters sometimes ask him whether he is really still a "capitalist". Head of the council is a labor market expert from Princeton, the body is completed by Heather Boushey. Like Bernstein, she has spent part of her career at the EPI. Institute President Thea Lee has just announced her move to Biden's team. The EPI spokeswoman has already taken up a government post.
Robert E. Scott is one of the think tank leaders.
In an interview he explains why the world has to be prepared for a kind of left-wing "America First" even under President Biden - and why US goods could become competitive worldwide after a deliberate dollar devaluation.
SPIEGEL
: Mr. Scott, Donald Trump's America First agenda is history.
But you too are calling on US President Joe Biden to bring millions of industrial jobs back to the US.
Why?
Scott
: Donald Trump correctly assessed the mood of many voters, especially among the working class, which has been hit particularly hard by globalization. These are the people who blamed China for lost jobs and social devastation - and they are not wrong. The US has lost five million industrial jobs, unlike Germany, for example, which has had a fairly stable share of industry in total employment over the past 20 years. That was one of the few good things about Trump: He put an end to the non-partisan quest for more and more global trade deals. Because these agreements were a failure for the American workers.
SPIEGEL
: Until the outbreak of the pandemic, there was no shortage of jobs in the United States.
The unemployment rate was at an all-time low.
Scott
: Sure, we have a lot of jobs. Most of those that emerged after the Great Recession of 2008 and 2009, however, are poorly paid. Many were created in the hospitality and retail sectors, but were wiped out in the pandemic. We need well-paid, secure jobs for those without higher education. That is the vast majority of the working population in the United States. This group has lost five million good jobs over the past two decades. They have been replaced by ten million poorly paid service jobs. This has contributed to the colossal rise in inequality in the US, to the nationalist wave of recent years, and to alienation of local communities. In short, we don't just have to talk about the number of jobs, we also need to talk about their quality.
SPIEGEL
: The US has long been a kind of protective power for free trade.
What went so wrong with globalization in the United States?
Scott
: On the one hand, many countries spread unfair trade practices, China for example, but Germany is also part of the problem, and so are other European countries.
The US has failed to respond appropriately.
Other states are also way ahead of us when it comes to state industrial policy.
In the beginning, this was more likely to affect basic industries such as steel.
In the meantime, however, it is also about a much broader spectrum of developed technologies, about solar cells and wind turbines or electric vehicles.
Beijing is stuck as part of its
China 2025
-Strategy billions in these sectors.
And Germany is also ahead of us, because there more money is being channeled into researching industrial applications.
There is this institute that finances the development of industrial technologies and takes care of their dissemination in companies, what's the name?
"We cancel the efforts of other countries, we destroy their efforts."
SPIEGEL
: You mean the Fraunhofer-Gesellschaft?
Scott
: Exactly.
Unfortunately, we did not respond in the same way to the challenges of global competition.
We don't spend that much on research and development either.
SPIEGEL
: US Treasury Secretary Janet Yellen is campaigning for a globally uniform minimum tax for corporations.
What would that do?
Scott
: It would be a good first step.
One of the biggest problems is Trump's major tax reform, which has slashed multinational corporations and the wealthy by a total of $ 2 trillion.
It was supposed to make relocating production abroad less profitable, but it has actually achieved the opposite.
“Biden's program would create 3.3 to 6.3 million new jobs in the US.
Almost half of them would be well-paying positions in construction and industry. "
SPIEGEL
: Why is that?
Scott
: On many investments abroad, about twelve percent tax is effectively due, compared to 21 percent on purely domestic operations.
This is especially true in the area of »intellectual property«, such as software from Apple or pharmaceuticals for the pharmaceutical industry.
According to calculations by several economists, this regulation has resulted in the US trade deficit in the pharmaceutical sector alone swelling to one percent of economic output, which corresponds to around 200 billion dollars.
SPIEGEL
: President Biden has announced a large-scale infrastructure program.
How would that two trillion dollars have to be spent to benefit the American workforce?
Scott
: The questions are: How big is the program really going to be? What types of projects will it include? According to my calculations, Biden's two-trillion climate and infrastructure program from the election campaign would create between 3.3 and 6.3 million new jobs in the US (here are the EPI calculations). Almost half of those would be excellent, well-paid positions in construction and industry. However, the actual proposal by Biden and Vice President Kamala Harris right now is to spend a similar amount of $ 2.2 trillion over eight years instead of four. Therefore, roughly speaking, only half as many new jobs would be created, between 1.7 and 3.3 million.
SPIEGEL
: You also argue that the dollar is valued far too high.
The US should devalue its currency to make imports from China and Europe more expensive in the US market.
Scott
: That's the crucial part of our problem: we missed managing exchange rates properly.
That is the US's original sin in globalization.
The dollar is overvalued; it should fall 25 to 30 percent against the euro, the Chinese renminbi, the Korean won and the Japanese yen.
Only by devaluing the dollar will we be able to close the huge deficit in the US trade balance and strengthen US industry again.
SPIEGEL
: Doesn't the relationship between the dollar and the euro and the renminbi simply reflect the demand for these currencies?
Scott
: One reason for the overvaluation of the dollar is massive currency manipulation in two dozen countries in Asia and Europe: China, Japan, South Korea and some smaller countries like Singapore and Taiwan.
These states were most actively buying up US securities between 2000 and 2015, especially government bonds.
In doing so, they prevented their currencies from appreciating against the dollar.
That is why the US trade deficit has continued to grow.
That is the reason for the de-industrialization of the USA.
SPIEGEL
: What helps against a strong dollar?
Scott
: We can counter currency manipulation by government agencies directly.
The economist Joseph Gagnon of the Peterson Institute has proposed "counter-currency interventions."
So we would have to do exactly what the governments of China or Singapore are doing - and invest in foreign securities.
If other states drive the dollar up by buying US Treasuries, then we have to put the same amount of money into bonds from those countries.
So we ruin their efforts.
We can also make it less attractive for foreign buyers to buy US securities.
“It's hard to win a currency or trade war with the US.
We have so much more powerful weapons at our disposal. "
SPIEGEL
: How is that supposed to work?
Scott
: The best way is to have some kind of foreign investment tax.
If you want to put yen or euros in US securities, you should pay a transaction fee, five percent of the volume, for example.
That could be enough to depreciate the dollar's value and balance trade flows.
Two senators proposed a corresponding law in 2019.
The US Federal Reserve would be authorized to set the amount of the levy so that the US trade balance would be in balance.
SPIEGEL
: Foreign investors hold US government bonds worth more than six trillion dollars, with Japan alone accounting for 1.3 trillion.
Isn't America cutting its own flesh with your idea because it would make it more difficult to get new loans?
Scott
: Such a move would have a small effect on interest rates in the US, but we're talking about tenths of a percentage point.
In fact, that would also have positive effects: The low interest rates have long been a cause for concern for many American small investors and retirees who have to make private provision for old age.
SPIEGEL
: How can you be certain that other states are not turning the spiral any further - and are buying even more US securities to drive the dollar up?
Aren't you risking the outbreak of a currency war with your strategy?
Scott
: The initiative would give the Fed the power to borrow practically unlimited.
That is an important signal.
It's hard to win a currency or trade war against the US.
We have so much more powerful weapons at our disposal.
"Instead of corporate rights, climate change is at the center of the debate on globalization."
SPIEGEL
: Your countermeasures are based on the US being able to prevail in a currency war because it is the largest and strongest economy in the world.
Wouldn't it make more sense to settle the question of the imbalances in world trade in a civilized way?
For example, why isn't the US calling the WTO?
Scott
: I don't like the comparison with war, I find it inappropriate. It is about regulating the financial markets. We are simply at the end of a massive cycle of deregulation in these markets. Over the past 50 years there have been repeated major currency adjustments. In 1971 the US was forced to abandon the gold standard. President Nixon introduced a temporary surcharge on imports pending an agreement to adjust exchange rates. In the mid-1980s there was the next dollar crisis, one reason being the increase in Japanese imports. The trade deficit reached an unprecedented three percent of the US economy by the standards of the time. Congress rebelled. At that time, a law was passed on 25 percent tariff on all imports. In short: there are always trade criseswhich then lead to new agreements and a balancing of exchange rates.
SPIEGEL
: Isn't that the US putting the ax to globalization?
Scott
: On the contrary.
It is the huge imbalances in the world trading system that are fueling trade conflicts as well as resistance to free trade.
This is not only the case with the US population, but also in other countries.
If we balance global trade fairly, it may pave the way for a new kind of trade deal.
SPIEGEL
: How should these new treaties differ from the previous agreements?
Scott
: I'm thinking of contracts that look at common international problems, labor and environmental standards for example, or tax evasion by companies and private individuals.
That would be more important than simply creating a few new rules for rebuilding the World Trade Organization (WTO).
SPIEGEL
: Why do you quarrel so much with the organization that was created to watch over fairness in world trade?
Scott
: A lot of WTO decisions are biased against the US.
The arbitration mechanisms are designed in such a way that, above all, multinational corporations benefit from them, at the expense of workers in many countries around the world.
In proceedings at the WTO, coalitions of the private sector are formed, which ultimately dictate the rules so that trade and globalization primarily benefit the rich and powerful.
“This money buys enormous influence from the rich and powerful.
Checks mean access. "
SPIEGEL
: You would say that the point is not to end globalization - but rather to put it at the service of the citizens?
Scott
: And in the service of the environment.
Instead of corporate rights, climate change is at the center of the debate on globalization.
Take the example of the Keystone XL oil pipeline, which is intended to transport oil from Canada to the United States.
President Joe Biden has stopped construction.
The owners of the line immediately announced that they would file a lawsuit against the US government under the North American free trade agreement NAFTA.
This is an example of how corporations abuse the dispute settlement mechanisms in today's world trading system.
SPIEGEL
: If that is so clear: Why have democratic governments negotiated and concluded new trade agreements in the past few decades?
Scott
: The pursuit of more and more globalization has become an obsession across party lines, including in other countries.
In the US, however, this also stems from the corruption of our political process.
Both parties have become dependent on private donations.
The last presidential campaign swallowed up $ 14 billion!
That's crazy.
And this money buys enormous influence from the rich and powerful.
Checks mean access.
SPIEGEL
: To come back to the workforce.
Do you really believe that a few factory jobs can pacify Trump's electorate?
Scott
: That question is the biggest challenge facing the Biden government and the Democratic Party as a whole: what to do about the loss of their base among the workers? They have to prove that they can still achieve meaningful benefits for these people. We have to focus like a laser on helping these people. They don't need transfers, they don't need unemployment benefits, they need good jobs. This is the only way we can counter the deepening resentment and alienation that have long held this country, at least since the Ronald Reagan presidency.