Lessons from the nearly two-decades-old trade agreement have apparently gone unheeded
A very popular and charismatic young democrat, swept into the oval office during tough economic times; his election made possible, in part, by widespread public dissatisfaction with a president named Bush. The centerpiece of his first term took a lot of hard work and political savvy to get passed, as even some within his own base were reluctant to support him on it. It was needed, he assured them. It was a good first step.
Now, quickly: Who is the President, and what was the piece of legislation?
If you said Barack Obama and the Affordable Care Act (ACA), otherwise known as “Obamacare”, you are correct. However, you are also correct if you answered Bill Clinton and the North American Free Trade Agreement. The similarities between the two are so striking that one cannot help but wonder how the lessons of NAFTA were ignored by so many during the selling of Obamacare.
Bill Clinton inherited NAFTA from his Republican predecessor. His task was to convince the labor unions that had helped elect him that it was a good idea. To be sure, it sounded like it would work. Yes, jobs would be lost to the cheap labor market below the border, but new opportunities were being made available in the high-wage paying service industries. Suddenly, middle-class men and women who had never known anything but punching a time clock in a factory were sitting in college classrooms; dreaming of the money they’d soon be making in their new careers.
In a perfect world, everything would have worked exactly as we were told it would. We do not live in a perfect world, however. We live in a capitalist world, and the basic law of supply and demand applies to everything from the simplest details of our daily lives to the most complicated of legal contracts. It decides how much we make, what everything costs, who we marry, what we watch on television, where we live. It cannot be escaped, but it can be understood and used as a tool to examine the failures of NAFTA and predict the pitfalls in Obamacare.
As wave upon wave of graduates poured from the trade schools of suburban America, the supply of trained, qualified applicants for available positions began to outpace the demand for their services. As a result, wages stagnated, and then declined. Mexican workers eventually felt the pinch as well, as their employers moved east for even cheaper labor. Corporations are what they are, after all, and they have only two goals: minimize costs and maximize profits.
To be fair, the Economic Policy Institute documents the decline of real wages (wages adjusted for inflation) since 1970. The point is that NAFTA did nothing to stop this trend, as Clinton had assured us it would. In fact, the EPI studies show that the decline actually steepens in the years since NAFTA was enacted.
What does all of this tell us about Obamacare? Do Obama’s claims stand up to the supply and demand test? No, they do not. There are no cost controls in the legislation. The idea that it will make health care more affordable is an intellectually dishonest theory not based in reality. Follow the simple logic: more people with coverage means more people seeking health care. This increases the demand for that care without increasing the supply. In what universe does this not mean the cost will increase?
Keep in mind, this is not a health care mandate, it’s a health insurance mandate. This means you will still have deductibles and co-pays and you will still be responsible for a certain amount of the costs you incur after you meet those (a typical insurance policy pays 80%, leaving you owing the other 20%). Obama claims the huge new pool of customers will cause a reduction in premium costs. Again, this is flawed. If you increase the demand for insurance…well, you get the point.
Most galling of all of is that this is exactly what should be expected from corporations. To paraphrase a few lines from Monty Python and the Search for the Holy Grail: “What do corporations exist to do? Make money! And what do they do apart from making money? Make more money!” If you want to take issue with this, start with the laws that allow them to do as they do, but don’t blame the corporations for doing precisely what they were created to do; and, at the very least, expect it from them.
The ideas used to sell both NAFTA and Obamacare to a skeptical public were based on the assumption that corporations will not do what corporations do. Clinton claimed his NAFTA had “teeth”, referring to so-called “environmental and labor protection clauses”. In reality, NAFTA merely contained a side agreement urging that all countries involved enforce their own existing laws and policies which an intelligent man like Clinton had to know was pointless. . Obama calls the ACA “health care reform” while denying the basic truth that nothing will truly reform health care in the United States until we stop trading basic human rights on the open market like commodities.
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