Free Trade Agreements Have Boomeranged

Sankarshan Acharya[1]
Founder, Pro-Prosperity.Com and Citizens for Development

April 14, 2016

To:      Mr. Donald J. Trump, Republican Presidential Candidate, 2016

Cc:      President Barack Obama, Senator Bernie Sanders, Other leaders and followers

            Please feel free to circulate.  This memo is being updated here at pro-prosperity.com.

Dear Mr. Trump,

You have eloquently narrated and millions of your followers agree with you on the serious adverse impact of free trade agreements on their jobs.  You have blamed established politicians for signing such irrational  agreements. 

Who are, though, the true architects of such free trade agreements and what is their ulterior motive? 

You have not answered these questions. The established punditry in favor of such free trade arguments has touted that globalization is inevitable and good for the economy, contrary to reams of evidence you have presented.  You see such established punditry as stupidity. 

Are the established pundits really stupid?  This question has intrigued me since my January 2005 memo, entitled, "Enhancing American Competitiveness," that I had submitted to the U.S. president the previous president as well as to many  prominent members of Congress including the then Illinois Senator Barack Obama who subsequently became president.  This memo continues to be one of the most downloaded documents from my web-site, pro-prosperity.com.  One of the issues vividly described in this memo: the policy of generating profits by relocation of U.S. factories to low cost countries falsely presumes that US workers being uprooted would keep borrowing and spending.  This memo concludes how such false presumptions have built a massive economic depression under the veneer of propaganda by established punditry that economic prosperity would continue unabated due to an invincible system of banking and finance. 

My 2005 memo, however, does not identify the true architects or any credible motivation for free trade agreements, which have now politically boomeranged on the establishment politicians, as your rallies get larger and louder. 

Who are the true underlying architects and are they really stupid?  I got an answer to this question only two days ago.  They are the U.S. Robber Barons and their political sponsors, who are perpetually driven by indolent systemic robbing of enterprising wealth creators with impunity through laws they foist on We the People.  The enterprising wealth creators include those U.S. factory owners who shift their production facilities elsewhere for survival and their counterparts in countries like China and Mexico that engage workers for pittance to earn a fair return on their investment. The Robber Barons' expectation (successfully realized until 2008) is that free trade agreements would beget massive inflow of profits of these enterprising wealth creators into the custody of U.S. banks and financial institutions for systemic robbery by the Barons. 

The 2008 financial catastrophe has so unnerved the enterprising wealth creators everywhere that they have rather salvaged their unsecure investments from the custody of Robber Barons to buy U.S. Treasury securities.  This conclusion is ratified by two facts: (a) massive flow of dollars to U.S. Treasury securities, which has lowered the Treasury yields and raised the value of dollar, and (b) the ensuing panic among Robber Barons leading to a public discourse on negative rates of interest made by the associated elite pundits of systemic robbery. 

The only unique unanimously agreeable, efficient, stable and constitutional system available to make U.S.A. great again was discovered by me in 1991 and mimeographed at the Board of Governors of the Federal Reserve System in 1991: Safe Central Banking. Briefly, this is how this profoundly significant unanimously agreeable system originated and proved its efficacy:

  • The 1987 stock market crash prompted me and a colleague in NYU to discourse and discover an unprecedented bank foreclosure rule which was published in a top journal in 1989 and then promptly embraced by the U.S. Congress that year, leading to a formal law, the Federal Deposit Insurance Improvement Act of 1991.
  • The U.S. Banking and Financial System was perceived to be stable after FDICIA-1991 was enacted.  Money flowed from all over the world to U.S. banks and financial markets, leading to a quadrupling of stock market indexes.
  • As soon as I came to the Federal Reserve as a financial economist in 1990, on two-year leave of absence from NYU, I found that the newly enacted bank foreclosure law was being systemically transgressed via the bank holding company structure with active connivance of bank regulatory institutions.
  • Thinking that the Federal Reserve was guided by sound economic models, I lucubrated for a year to successfully obtain the safe central banking policy for efficient resolution of systemic moral hazard within a dynamic (long-run) microeconomic model of the economy designed to attain such macroeconomic policies in equilibrium.  The safe central banking policy is now proven to be unique, unanimously agreeable, efficient, stable and constitutional.
  • The Robber Barons colluded to block publication of my safe central banking policy in the elite journals of economics and finance controlled by the elite pundits of systemic robbery funded by the Barons, while perhaps pleading with the Congress to not any policy not published in such journals.
  • The Congressional Financial Crisis Inquiry Commission correctly found that the 2008 financial catastrophe was due to failure of Robber Barons, bank regulators and elite pundits of systemic robbery.
  • The efficacy of unique unanimously agreeable system (rules) of governance attained in general equilibrium in a fundamentally fair (unbiased) model of the economy - like safe central banking policy, independence of market making and clearing - is now obvious: suppression of such rules have led to irreversible economic depression and instability (anger, protest and revolution) that ultimately painfully regresses the economy towards the same unanimously agreeable rules. 
  • To stem the domino of crashing markets in 2008, the US Congress had to adopt, ad hoc, my safe central banking policy by guaranteeing $7.8 trillion of previously uninsured bank debt and $3.5 trillion of previously uninsured money-market funds.  Most of these funds and subsequent large savings of enterprising wealth creators (greater than $250000 bank deposits insured by FDIC) must have since 2008 flown from the untrustworthy Robber Barons to U.S. Treasury securities.  The government has spent these funds on doles to unemployed and impoverished voters to avert revolution.  But revolutions have occurred anyway:  both party establishments have been jolted in 2016.  Most privileged too-big-to-fail banks - except perhaps some of those that could successfully rob many unprivileged banks, hedge funds, pension plans, mutual funds and investors in 2008) must have become empty shells while privatizing profits and socializing losses.
  • Epistemic truth - about unanimously agreeable rules of governance - which is paramount for everyone's freedom always triumphs. Will Robber Barons, sponsoring politicians and associated elite pundits of systemic robbery enjoy freedom when their shenanigans have been exposed to a democratic polity?  No. 
  • There is an unbearable price of prejudice towards unanimously agreeable rules of governance.  This price seems to be rising prohibitively due to avoidance of the unanimously agreeable rules of governance. This should make the Robber Barons, their sponsoring politicians and the associated elite pundits of systemic robbery agree to the unique unanimously agreeable rules of governance.  They can no longer fool the enterprising wealth creators. 

Conclusion: Free trade agreements have boomeranged, politically and financially, on the true architects - Robber Barons, allied politicians, and associated elite pundits of systemic robbery.  If unanimously agreeable rules of governance were enacted in toto, the wealth created within USA (and even inflows from elsewhere) would have been duly preserved for efficient investment in new innovative ventures for new jobs.  This would have averted the ongoing struggle of companies for survival through relocation.  In this case, the dollar would not have strengthened, Treasury yields would not have declined, tax revenues would not have fallen and the government would not have borrowed as much as happened.          

With best regards,
Sankarshan Acharya