Does Kusumi know something
that Washington doesn't?
America's 18-year-old for President:
Why does Washington "just not get it"
what's really the matter with free trade?
John Kusumi has been
advocating policy and critiquing Washington for 24 years. The former 18-year-old
for U.S. President (he was an independent candidate in 1984) is now 37 years
old, and out with a book, Activate This!.
Through his book, through
speeches, interviews, and publishing, and through his work at the China Support
Network, Kusumi has been critical of globalized free trade as promulgated by
He says, "Everyone
carries around a mental model -- a conception of how things work. In Washington,
the conventional wisdom about trade deficits has been flat wrong. If my book
were promoted, caught on, or simply picked up and read by the likes of President
Bush, John Kerry, and the staffers around them -- then, it might dawn on them.
In the globalization of free trade, the trouble is that a faulty paradigm became
What might really dawn upon
these people? That they have followed flawed logic? --The question is answered
explicitly in the excerpt below, taken from Kusumi's book, Activate
This!. To understand the problem
of free trade, Kusumi says that it is first necessary to understand trade
Washington types should care
to understand trade deficits, and now Kusumi is trying to make the debate
accessible for laymen. "Sometimes, people say, 'Slow down and explain this
to me like I'm an 8-year-old.' This is my attempt to introduce trade deficits
for readers from 8 to 80," he said.
He asks your indulgence to
follow the explanation, that he renders like a school teacher in this 'primer on
trade deficits,' from his book.
chapter is an occasion when I can convey a clear understanding of trade deficits
to my readers, with material that may be new to many. Trade deficits ought to be
less obscure and esoteric than they have been heretofore. When we wake up to
them, we find many other political issues and problems linked to
misunderstanding of trade deficits. Included here, is a better view of trade
deficits for Washington, which has been too foggy for too long on this topic.
I said I believe that Clinton was working with faulty arithmetic. If true, that
can be ascribed to a conventional misunderstanding of trade deficits on the part
of the U.S. establishment. It is in this area of trade deficits where our entire
polity needs to upgrade its understanding.
ease understanding, in writing here, I may use the less stilted of two terms,
where they are interchangeable. For example, I may speak of buying, rather than
“importing.” For present purposes, they are interchangeable terms. Likewise,
I may speak of selling, rather than “exporting.”
stilted word, “bilateral,” describes trade as it actually takes place. By
this, I mean that two parties make a transaction, or exchange. Generally, money
changes hands. At the end of day, trade is buying and selling. Trade certainly
adds up, but when it is understood through this “atomic theory,” we see that
its simplest, most necessary element is a transaction.
parties in any transaction have an economic relationship. We can speak of China;
America; a popsicle stand; or, a lemonade stand. Economic parties share
essential things in common. In all cases, they have things they buy; things they
sell; and, they have their money.
this view of trade deficits, I suggest you identify with one party, at one end
of a relationship as described. E.g., you run “your popsicle stand.” In the
discussion, America substitutes for your popsicle stand, but the same principles
apply, and the conceptual play is meant to help with learning our material.
its literal definition, a “trade deficit” is the amount you buy, minus the
amount you sell, when that calculation comes out to a positive number. For that
calculation to return a positive number, buying must be more than selling. Then,
the value of the result expresses the amount of your trade deficit. (The result
answers two questions. “How much is the trade deficit?” And, “How much is
the difference, of buying in excess of selling?”)
about the money comes next. Buying entails money going out, or going away.
Selling entails money coming in. Within the meaning of “trade deficit,” to
have one requires that your level of buying is in excess of your level of
selling. More money is going out than is coming in. The amount of the trade
deficit is a loss of money.
a popsicle stand, that means operating at a loss. For the American economy, it
means likewise, and worse.
bad news does not stop at the American economy. The money that flows out goes
somewhere – it arrives at the other end of the trade. In China, the money
comes in. At their lemonade stand, they make a profit. America’s loss is
definition is scarcely my point, but it is my beginning. Going into usage;
implications; economic upshots; and, policy upshots must develop the clear
understanding and better view as promised. I may have something to say about
America’s loss; later, the Chinese democracy movement may have something to
say about China’s gain. Here, we must look at each side of that coin, starting
with the American side.
the American exposition, we must consider two lines of inquiry. First, are trade
deficits a good thing, or a bad thing? Second, what may happen in the future of
trade with China? Will trade deficits get larger, smaller, or cut off? These are
three political scenarios. What are the implications in each case?
first question, above, has found American politicians on both sides of the
issue. On one side, trade deficits are a problem (bad thing), and they are
roundly decried. Alternately, on the other side, trade deficits are a non-issue
(good thing), and they are excused and dismissed.
will stand firmly in saying that trade deficits are a bad thing. With having
introduced trade deficits as a bad thing, above, readers who are with me may be
saying, “Duh – losing money is a bad thing.” True enough; and, the more I
looked into it, the more I found that trade deficits hurt the economy in
alarming ways. I want to answer my readers who may ask, “Why don’t
politicians ‘get it,’ or do the right thing?” We will return to
discovering “bads” in the reality of trade deficits; but to understand their
place in Washington’s political situation, we must look at the perception of
trade deficits. The answer is a matter within perception, apart from reality.
U.S. establishment has been humming along with persuasive arguments that trade
deficits are a ‘non-issue.’ Some have stock answers, to explain away trade
deficits. Some politicians may genuinely, and in good faith, believe these same
explanations. Such arguments are persuasive – but wrong. I must digress, and
perhaps excuse politicians from full culpability.
should know that politicians themselves get an education. They, too, hear these
same faulty explanations. If we seek one, the culprit could be the politician
– or, the culprit could be the argument, where it has become conventional
wisdom and the line of the day in the U.S. establishment. Maybe the politician
wasn’t born bad, but the argument certainly was; and then, it became what
“everybody thinks” in the establishment.
personally confess to having taken the learning curve on this issue, and this
may be why I am going easy on politicians. I, myself, originally fell for the
standard explanations – and later, had my own epiphany about trade deficits.
My vignette may be instructive, for being rare.
normal America, nobody thinks about trade deficits, because the whole matter is
“above their pay grade.” It is nobody’s job to worry about trade deficits,
unless they are an occupant of the White House, or a presidential candidate.
That’s where I come in; who else was the 18-year-old candidate for U.S.
President? From 1984, the answer is, “no one else was.”
this book being my life’s story, we see I hadn’t tried to be a politician in
many years, but study of presidential issues remained my interest, into college.
At age 18, I certainly did not know everything, and I still had much to learn. I
was frankly curious about trade deficits, and I picked up the Atlantic monthly.
was happy to find an Atlantic article, which expounded about them at some
length. Here, in the second half of the 1980s, I read the standard explanation,
where trade deficits can be discounted for purposes of policy making. The
explanation essentially says that money re-circulates; what goes around, comes
around; it all comes out in the wash; and, “it’s all good.”
respected the Atlantic as a source of information, and I was convinced. It
appeared that trade deficits were a smoke screen issue, and that at
macro-economic levels, there was no ultimate downside to trade deficits. I will
dub myself of those days to be “College Kusumi.” College Kusumi put down the
magazine, shrugged, and said, “Great – I can blow off trade deficits [as a
factor in any future policy development]!”
many years, this caused me to stop paying attention to the issue of trade
deficits. At the start of his term, I believe that Bill Clinton operated under
similar assumptions. Near the start of his term, his Secretary of Labor, Robert
Reich, published a book, The Work of Nations. Since Reich was Clinton’s
advisor, the book may be indicative of Clinton’s thinking in the day. This
book again excused trade deficits, and conveyed the underpinnings of what would
later become the globalization of free trade.
book forecast the decline of manufacturing in America. Manufacturing would move
offshore, inexorably, as corporations seek lower costs. The book offered no hope
for that sector of our economy, and did not advocate any moves to stem the
erosion. With this grim prognosis, the book suggested we roll with the
inevitable decline, accept it, and move on to free trade, seeking to make the
best of this scenario.
the day, I agreed that trade deficits were a non-issue, and my issue with the
book was simply that “no hope for the manufacturing sector” didn’t sit
well. As a society, we went to all the trouble of having an industrial
revolution. Now, it would go away, to not even a whimper or a response on our
part? Even were we resigned to manufacturing’s erosion, principles from
microeconomics would have us minimizing the losses. The trend may be for loss of
manufacturing, but why would we give in and hurry the erosion along? The book
was a green light for buzzards and vultures to contemplate the carcass of
one is oblivious to trade deficits, what can happen is the globalization of free
trade. That proceeded to happen in the 1990s; and, I will also return to
globalization. But, my vignette leads to my own epiphany about trade deficits.
cannot tie my epiphany to an event or a specific day. Unique conditions form a
soup of precursors in my environment. The soup base recipe might appear as
by being founder of the China Support Network. Gain thereby, the China issue
to contemplate for many years.
years of business experience.
the mindset of a software developer.
accounting knowledge, being engrossed in developing accounting software.
this fertile environment fell the Chinese trade deal, which prompted me to think
furiously about China trade. I had long been aware that China was getting a good
deal; but now, I began to analyze America’s bad deal. Pieces of the puzzle,
which had long been on my desk, began coming together. That was an epiphany.
the toughest actions for people to take is to admit mistakes. Politicians in
particular, care very much to appear infallible. In fact, software CEOs would
like to appear infallible. I can’t predict that we will hear from many
politicians, saying, “All those years – I was wrong about trade deficits!”
But for my part, I admit that all those years – I was wrong about trade
digression was to express that politicians can have a misconception about trade
deficits, and this can be quite a natural condition. Our environment holds it as
conventional wisdom. The faulty reasoning is widely shared, and effectively
educates many. Anchors, pundits, and commentators are not accustomed to tearing
into trade deficits, like they once did with budget deficits.
college classes of introductory economics have, on occasion, missed this bad
news about trade deficits. For most people, all that is learned of economics is
two widely given courses—
- Economics 101: Macroeconomics
- Economics 102: Microeconomics
the question, “How macro is macro?” In the old days, we may have equated the
national economy with being macro. A low volume of trade encouraged the thought
of it as an island. In the new days, we may consider three “levels” of macro
– national; the free world; and, the globe.
early courses go for theory and keep a top line orientation. They remove other
considerations and assume “ceteris paribus,” meaning that variables in the
environment do not change. Macro and micro are simplified academic models.
the uninitiated, microeconomics is about individual players in the economy –
firms and businesses. Microeconomics is focused on a small scale, not the
international level where trade deficits occur. Micro will not tell you about
is focused at the level containing all. At that level, trade outside the system
makes no sense to introduce. Again, you could completely miss trade deficits,
which occur between nations.
worse, professors will sometimes repeat the line, that to the macro economy,
trade deficits are a non-issue. In one sense, they are right. –Because the
globe has no trading partner, it also has no trade deficits. In this academic
way, trade deficits disappear. To get there, one must consider the globe as one
accounting unit, and not consider any other. Smaller units, like nations, do
live among company, trade, trading partners, and trade deficits.
can see that our environment is ripe for misunderstanding of trade deficits.
no mistake; trade deficits are a bad thing. But, countervailing ideas have
gained currency. Politicians have been working with the perception of trade
deficits, not the reality. In answer to the question, “Why don’t politicians
‘get it,’ or do the right thing,” they truly may not know any better.
away from perception, let’s turn back to reality. Upon review, the reality of
trade deficits only gets uglier, and yet it is news to many politicians. Let’s
look at related issues where trade deficits hurt the economy.
- Strength of the dollar
- Cost of living
- Industrial base
a hefty issue. I will condense my discussion to one paragraph for each of these
jobs, a trade deficit represents jobs
which are not here. A widening trade deficit often represents American jobs
going overseas. Politicians can, should, and must favor more jobs in their
districts, not fewer. Progress in the right direction is hampered or hindered by
wages, any loss of American jobs, as accompanies a widening trade deficit,
represents downward wage pressure in America. As more people compete for fewer
jobs, wages are pushed down, based on the laws of supply and demand. Politicians
should not favor income erosion, but trade deficits challenge us in this
strength of the dollar, trade deficits represent a hemorrhage of liquidity from
the American economy. This can lead to weakness in the value of the dollar on
the currency markets. Trade deficits are bad for the strength of the dollar.
inflation, should there be erosion in the value of the dollar as above, that
means something in America – higher prices for imported goods. This mentioned
condition would contribute to rising inflation. Trade deficits are bad for
cost of living, trade deficits can hurt in two ways. Falling
wages, which as noted may accompany a widening trade deficit, lead to a higher relative
cost of living. Should the inflation scenario materialize as above, that would
contribute to a higher absolute cost of living. The cost of living can
move on a relative basis, or an absolute basis, and in each way, trade deficits
pressure the cost of living higher, not lower.
the industrial base, we are allowing China an unfair advantage – slave labor.
On this tilted playing field, more than our money goes to China. China will get
more than its share of the free world’s industrial base. Harry Wu, a leading
Chinese dissident, has said: “Forced labor of any kind upsets the balance of
trade, by giving one economy an advantage.”
deficits are when "we are getting poorer, and somebody else is getting
richer." Trade deficits can be thought of as a hole in our pockets. I have
said there is a $350 billion hole in our economy.
deficits can also be thought of as economic activity that is “over there”
instead of “over here.” The $350 billion is spending. Instead of being
“over there,” it could be economic activity at home. Once the destination
economy is known, that economy, alone, benefits from a multiplier effect as
money is spent. Our economic loss includes the multiplier effect on $350 billion
the point of the discussion, trade deficits do hurt our economy – and
that’s a bad thing. I may divide politicians into two categories:
“trade deficit aware,” and “trade deficit agnostic.” In Washington, the
agnostics have been running the show, and they should “get religion.”
Thank you for reading my excerpt, taken from
Chapter 14 of my book. Once we are clear about trade deficits, then the
problem of free trade is more evident: Free trade encourages trade deficits.
It also encourages misbehavior from communists, dictators, tyrants, and thugs,
who are beating us at our own game. (The 'trade deficit agnostic' people have
also been 'values agnostic,' and globalized free trade requires the assumption
that there are no bad guys; no bad trading partners; and no bad business
practices.) It challenges freedom and democracy by buttressing tyranny, and
it is ultimately against America's own self interest.
The book is available at www.kusumi.com.
John Kusumi was Ronald Reagan's youngest
political opponent, and the first Generation X politician. As 1984's 18-year-old
in the race for the White House, his was the first appearance of any 'GenXer' in
U.S. federal elections. Kusumi founded the China Support Network (CSN) in 1989.
Standing with the Tiananmen Square pro-democracy dissidents, CSN continues to
urge anti-communist Americans to join this battle-with-communism, in progress to
this day. See www.chinasupport.net