The Trouble With Subsidies

Mr Zakaria is not siding with President Obama. Mr. Zakaria is saying not to subsidize the auto industry because it isn't going to make America any richer. Production in America is too expensive to continue with in America not only because of the cost of labor but because of the cost of materials. The problem is that Mr. Zakaria does not understand manufacturing and has not been paying enough attention to the manufacturing problems occuring in China. We still need to maintain some type of steel and auto production in this country.

The Chinese have to import iron mainly from Brazil and Australia for manufacturing and the Chinese are currently overproducing steel forcing the rise of iron prices across the world and causing havok in their own country. Judging by the riots over plant closings. these riots could create artificial shortages due to disruptions in production and service.

The quality of Chinese steel is also questioned because of the newness of the steel market in China and it's rapid growth. Many of the steel manufacturers in China have come under fire for poor product quality especially here in America with the collaspe of the bridge in St. Paul in Minnesota which was reportly built with Chinese steel in order to cut costs in materials.

America is a moderate producer of steel products such as automobiles and steel. We rely heavily on cars and trucks for transportation due to the size of our country and the way our society functions. America needs to have some form of steel and auto manufacturing in case of disruption to the production systems in Asia. So subsidizing the auto industry is not a bad thing, it's just the best thing to do right now given the chaos in Asian manufacturing at this time.

I have to question Mr Zakaria's math here. He states (by his math)that gain in productionof 0.5 million metric tons of steel would result in American economy gaining about 1,000 jobs. That results in 1 job gained for every 500 metric tonnes of steel produced. Then he states that we export 9 million metric tones ofsteel, and that loss in 1% of that (90,000 metric tones) would result in US economy loosing 65,000 jobs. That is one job lost for every 1.38 tones produced, compared tp 1 job for 500 tonnes gained. Something seems fuzzy about this logic to me. Is he fudging up the numbers to make his point, or is he just a complete imbecil. I would not mind to see some real arguments forand against free trade, but I would like tosee ones based on facts. This kind of argument reminds me too much of the type of arguments I have seen at some of the right wing web sites, few years back who tried to prove that living in Irag at that time was less dangerous for US soldiers than living in some US metropolitan areas (by fudgging a death statistics).
I really enjoy reading Newseek - to which I am subscribed to trough my Amazon kindle, but aftr reading this article on tuesday I could not pick up a magazine to read it again.I would really like to encourage the editorial staff at Newseek to pay a loser attention to some of their so callled experts, and numbers and agendas that they are pushing. Perhaps "Buying American is not so bad after all, since if we used 1 job for 500 tones of steelproduced ratio, wewould gain 1000 jobs, but due to 1% ofloss in exportsloose about 180 jobs. That to me isnet gain of 810 jobs.

I have to question Mr Zakaria's math here. He states (by his math)that gain in productionof 0.5 million metric tons of steel would result in American economy gaining about 1,000 jobs. That results in 1 job gained for every 500 metric tonnes of steel produced. Then he states that we export 9 million metric tones ofsteel, and that loss in 1% of that (90,000 metric tones) would result in US economy loosing 65,000 jobs. That is one job lost for every 1.38 tones produced, compared tp 1 job for 500 tonnes gained. Something seems fuzzy about this logic to me. Is he fudging up the numbers to make his point, or is he just a complete imbecil. I would not mind to see some real arguments forand against free trade, but I would like tosee ones based on facts. This kind of argument reminds me too much of the type of arguments I have seen at some of the right wing web sites, few years back who tried to prove that living in Irag at that time was less dangerous for US soldiers than living in some US metropolitan areas (by fudgging a death statistics).
I really enjoy reading Newseek - to which I am subscribed to trough my Amazon kindle, but aftr reading this article on tuesday I could not pick up a magazine to read it again.I would really like to encourage the editorial staff at Newseek to pay a loser attention to some of their so callled experts, and numbers and agendas that they are pushing. Perhaps "Buying American is not so bad after all, since if we used 1 job for 500 tones of steelproduced ratio, wewould gain 1000 jobs, but due to 1% ofloss in exportsloose about 180 jobs. That to me isnet gain of 810 jobs.

The US deserves what it is experiencing now. The US has managed to bully others and now it has to face the biggest problem of its own making. The problem will become worse and even after the US has depleted all its resources to bail out and to produce stimulus packages, the recession will continue to go deeper because of globalization. Then the US will be in a state of panic but it cannot beg, borrow or even steal anymore because all the nations will become poor. What will the US do then? The US has to concede defeat or admit failure. The US will have to turn to other forms of economy, maybe socialism which will lead to communism. The latest spate between the US goernment and the corporate CEOs with a 90% tax, is just the beginning of the change over.

To the person who thinks that protection will erase the $700 billion trade deficit, note that that $700 billion deficit is the way America tends to save. America has a zero, if not negative, savings rate. That means we SPEND all that we earn, if not more (on average).

Where do savings come from for investment? Why, foreign countries. China has a 40-50% savings rate. Japan also has a high savings rate. Those nations also happen to be some of the countries with whom we run the largest deficit. Most of that money ends up flowing back into the US as investment, mostly because a) our spending is in dollars, and b) America is historically the place with the highest returns on capital.

Until we save more, don't expect a vastly reduced trade deficit. All we will accomplish is making americans poorer by causing our products to cost a lot more.

The Peterson Institute study is available at http://www.petersoninstitute.org/publications/pb/pb09-2.pdf. Mr. Zakaria appears to misinterpret the job gain/loss figures. He says the study asserts the Buy American provision would increase employment in the US steel industry by 1,000 while a one percent retaliation by foreign governments "would result in 6,500 jobs being lost in the same industry." The study assumes that foreign governments would retaliate by decreasing purchases of all US goods and services (not just US steel) by one percent in government projects. Thus, the potential 6,500 jobs lost would be spread across all US industries involved in export, not just steel.

The final version of the American Recovery and Reinvestment Act of 2009 tracks the Senate language of the Buy American provision which specifies use of US manufactured goods in addition to US iron and steel. The Peterson Institute study estimates the Senate language would increase employment in the US manufacturing industry by 9,000 using conservative assumptions (footnote five of the study refers to another study that suggests that up to 77,000 jobs could be created). It is unclear whether the 1,000 US steel jobs is included in that 9,000 figure. Nevertheless, a 9,000 or 10,000 job gain is the better comparison to the 6,500 (or 65,000) loss due to potential retaliation.

Free trade, not protection, got us to where we stand today.


Free trade and free traders like Fareed Zakaria have failed to deliver to the people of the United States the economic progress they claim free trade brings. I do not doubt for a moment that free trade has benefited some of out trading partners. Canada, Australia, and New Zealand have established new highs in real wages in the last year while American real wages are well below the high set in the 1970s. Compare the U.S. economy from 1969 to 2000 with free trade to the economy of 1869 to1900 with tariff protection. According to free traders a trade protected economy without foreign competition should have high prices, shoddy products, and producers should have no incentive to innovate. Society should slide into mediocrity and poverty. American tariff protection produced none of that. From 1869 to 1900 GNP quadrupled while real wages increased 50 percent, and retail prices dropped significantly. Under free trade a century later real wages declined, prices rose, and innovation became something we get from the rest of the world.


Fareed Zakaria should note that we are a trade deficit country. We go about $700 billion behind each year. A trade deficit country need not fear a trade war. The only net harm we would suffer from an all out trade war is the transition cost. Long term we would benefit from a trade war by $700 billion time whatever Keynesian multiplier might be. Bring it on.

I've been subscriber of Time Mag for a decade, and finally decided to subscribe Newsweek because it was part of a fundraising deal from my son's school. Before that I thought of Fareed Zacharia as a respectable journalist of the size of the Krugmans and Freidmans. What a dissapointment! I found out that he is just another Obama's a...licker no different than Keith Olberman. Cant wait until my newsweek subscription expires!

The greatest 20th century event for the Democrats was the Great Depression. It created a generation of lifelong commited socialist minded Democrats. Why would they not want to re-create that event in the 21st Century. "A good crisis is a terrible thing to waste" and therefore expect more legislation that mimics Smoot Hawley and drives our economy to its knees.

Once again something we already new ,Poor old Fareed running around nailing up suport timbers trying two suport his boy from falling , he is just lost in a crowd now ???????????????????????????????????????????????????????

Who's Fareed Zakaria trying to kid. He's been a worshipper in the "Cult of The Obama" from day 1. Obama is not a free trader, nor are his cohorts Nancy Pelosi and Harry Reid. Its a little late after giving these people power to start writing articles warning about the dangers of prortectionism. Obama and the Dems have already started an outright trade war with Mexico, another little gift from Obama's corrupt stimulous bill with it bonus guarantees for AIG Executives. Fareed had better hold onto his hat because there's lots more to come, and he campaigned hard for the people who are going to do it. Your actions Fareed have consequences too!