Escaping the Claws of Wall Street and Building an Economy on Making Things

Today, the Campaign for America’s Future is holding a “Building the New Economy” conference. As we build the new economy, it’s important we build one not based on the assets bubbles of the past but on the firm rock of manufacturing.

As AFL-CIO President Richard Trumka argues [1]:

Flawed trade and tax policies and a financial system focused on short-term profits drove good jobs offshore, led to record trade deficits, and left the economy in ruins. With the manufacturing share of gross domestic product withering to 12 percent (from 15.9 percent in 1995) and the financial sector growing to 22 percent, the structure of the U.S. economy looks more like Monaco than Germany. This growth model of asset bubbles, low wages, credit pyramids, toxic assets and unregulated out-of-control global capital has been a recipe for disaster.

There is a reason every other developed and advanced developing nation has a manufacturing strategy. Most governments see manufacturing as key to long-term growth, and they target investment in industries and technology. In contrast, our government abandoned strategy to market forces and left workers and communities hanging without a safety net.

However, if we just regulate Wall Street alone, we will not be able to grow a good economy. We must invest in manufacturing. Scott Paul, executive director of the Alliance for American Manufacturing, puts it this way [2]:

But chalking up the blame to a few bad apples on Wall Street and their risky financial instruments, and responding by simply providing appropriate regulation in the financial services sector, will ultimately be unsatisfying. There are much deeper, structural issues which must be urgently addressed. Otherwise, the absurd positive feedback loop will continue: consumer debt, subsidized Chinese imports [3], American job loss and factory closures, the growing U.S. current account deficit, burgeoning Chinese currency reserves reinvested in American debt…These will only inflate new bubbles and reinforce our current problems.

We must both re-regulate the financial markets and re-create our manufacturing base  to ensure an economy that works for everyone. Otherwise, we will simply borrow and borrow more and inflate asset bubbles that leave us deeper and deeper in financial crisis every time.