John Williams: How to Get the Economy Back on Track

An interview with the publisher of ShadowStats
October 9, 2013 Updated: October 8, 2013

John Williams’s Shadow Government Statistics is an electronic newsletter service that exposes and analyzes flaws in current U.S. government economic data and reporting, as well as in certain private sector numbers, and provides an assessment of underlying economic and financial conditions.

Mr. Williams, How Can We Get the Economy to Fire on All Cylinders?

What has to happen very simply is that the United States has to rebuild its domestic production base. It has to change its trade pattern from being one of continual deficit, draining national wealth and redistributing it to the rest of the world. It has to be one that generates a trade surplus and reverses things as you had back before the crisis really began to break in the ’70s.

How Would You Accomplish This?

There you have all sorts of factors involved in that. Generally they involve so-called free trade. And the competitive practices here in the United States are so burdensome for the American manufacturer. Examples are the environmental standards, occupational health and safety standards, and product liability standards. Those issues are not going to go away, but until the rest of the world has to abide by all of that in their manufacturing, there is no way you can bring manufacturing back into the United States.

No Way?

Unless you start imposing heavy tariffs, which goes against the concept of free trade. On the other hand these free trade deals we set up were heavily misrepresented to the American public. The basic theory behind free trade and how it works: You have two countries. One makes product A very efficiently, it doesn’t make product B too efficiently. The second country makes product B very efficiently and doesn’t make product A very efficiently. 

So if both countries open their boarders and trade freely back and forth, the first country will make most of product A, the second country most of product B, they are going to end up with greater production between the two countries than existed before, therefore to mutual benefit wealth is created. That’s the basic theory.

What’s wrong with that?

This is where the problems with the academic community come in: great theories, but they don’t work in the real world. 

The problem is that there is an underlying assumption there: Both countries are at full employment. We’re not at full employment, none of our trading partners are. So when we entered into the North American Free Trade Organization (NAFTA), what happened is that all the trade went to the low cost employers. 

We had a surplus starting with NAFTA, now we are in a big trade deficit. A lot of the manufacturing was shipped offshore; you don’t get it back. Our current trade policies are basically a system that redistributes U.S. national wealth to the rest of the world.

How Come the United States Is Still Doing Relatively Well?

It’s a big country, a lot of people, and we started very strong and very large before we started to get into this debilitating cycle with the trade numbers. Now, the size of the U.S. economy is dwindling relative to the rest of the world.

So How Do We Get Back to Winning Ways?

If the U.S. government wants to get the economy back on track it needs to reverse a lot of its trade policies. And if it’s not going to eliminate all of its regulatory laws that make it so difficult and expensive for an American company to make a product in the United States, then it has to erect tariffs so it cancels out the benefits of our trading partners that don’t have to deal with these regulations. And you are going to have trade wars. I don’t see an easy way out of it. 

Left to its own devices, the economy normally would become self-righting. The problem is that the government steps in and intervenes and tries to make things go one way or another and usually they make it worse.

So You Argue for More Protectionist Policies?

It is more protectionist than we have now but something that is fair in terms of putting us on an even playing field with the rest of the world. We can’t compete with the current regulatory structure in the United States; it’s impossible. 

It’s the syphoning off of wealth to the rest of the world that results from that, it’s the loss of high paying jobs that suppressing the household income, those are the problems. If you could address those, we could start to turn things around. But I don’t see anyone in Washington who is going to do that.

Thank you John Williams.