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Those of us ensconced in debates in support of U.S. manufacturing often hear opponents claiming that the over-regulated U.S. labor market and unionized heavy industry render us uncompetitive in global markets.

That may sound convincing given competition from emerging markets, but there are lots of advanced economies with long records of positive net exports, while we continue to run large deficits in manufactured goods, year after year.

If you’re thinking the difference must be prices, you’re thinking like an economist… and you’re pretty much wrong.

This new BLS report (including a link to their rockin’ new dashboard — go BLS!) provides the data in the form of manufacturing compensation costs across countries, with conversions to dollars using market exchange rates.

First, as shown in the first figure, in the most recent year for which they have complete data, we’re toward the low end of the advanced economies in terms of compensation costs. Second, in dollar terms, manufacturing compensation costs have increased much faster elsewhere over the past decade (figure two; these summary measures use trade-weighted currencies, based on each countries relative share of U.S. trade; you can use the dashboard link above (open the Excel file) to view individual countries).

*OECD, Eastern Europe, East Asia

Source: BLS (more…)

By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley

“I am concerned about the fact that the recovery that we’re on is not producing jobs as fast as I want it to happen,” President Obama said Tuesday, amid the flood of bad economic news, including last Friday’s alarming jobs report.

Does this mean we’re about to see a bold package of ideas from the White House for spurring growth of jobs and wages? Sadly, it doesn’t seem so.

Obama says he’s interested in exploring with Republicans extending some of the measures that were part of that tax-cut package “to make sure that we get this recovery up and running in a robust way.” (more…)

Robert Reich
Chancellor’s Professor of Public Policy,
University of California at Berkeley; Author, ‘Aftershock’

Finally, it seems, the economic burdens of America’s vast middle class may be catching up with the Street. The Dow lost 2.22 percent Wednesday; the Standard & Poor’s 500-stock index was down 2.28 percent. Both marked their worst declines since August 11, 2010. The Nasdaq composite index fell 2.33 percent.

We’re coming full circle: The stock market is dropping because corporate earnings are slowing. Corporate earnings are slowing because consumers are pulling back. Consumers are pulling back because they don’t have enough jobs or adequate wages. (more…)

By Dave Johnson
Campaign for America’s Future

Polls show that the American Majority is much more concerned about jobs than deficits. So why is DC talking only about deficits instead of jobs, when jobs are the medicine for deficits? And why is DC only talking about budget cuts as a path to fixing the deficits, when the deficits were caused by tax cuts and lack of jobs? In fact most of the “deficit cures” being discussed in DC don’t make the deficit better, they make deficits worse because they kill jobs. (more…)

By Leo Hindery Jr.
Chairman, U.S. Economy/Smart Globalization Initiative at the New America Foundation

We just saw a pretty good ‘official’ unemployment report for February, wherein for the first time since April 2009 the official unemployment rate dropped below 9.0% (to 8.9%). However, the real unemployment rate, which is the only rate that really matters, remains at 17.8%, including all categories of the 28.4 million out-of-work Americans. The all-important “jobs gap” that needs to be filled in order to be at full employment in real terms is a staggering 20.4 million, and the number of workers unemployed a half year or longer is at least 10 million. Each of these figures is unprecedented in modern times.

So, it’s not without moment that we look long and hard at President Obama’s dinner last month in Silicon Valley with his eight new BFFs (“Best Friends Forever”) — each the CEO of an Internet-related company — since the purpose of the dinner was to “discuss his competitiveness agenda and find new ways the government and private sector can work together to lift the shaky economy.” This of course is pretty weighty stuff.

Staffed only by his long-time confidant Valerie Jarrett, who is his ‘liaison to the business community’ (which says something in itself about his confidence in his overall economic team), Mr. Obama was joined by: Carol Bartz (Yahoo), John Chambers (Cisco), Dick Costolo (Twitter), Larry Ellison (Oracle), Reed Hastings (Netflix), Steve Jobs (Apple), Eric Schmidt (Google), and Mark Zuckerberg (Facebook). In describing this two-hour soiree among titans, Conan O’Brien said that, “Friends of Obama met with Facebook founder Mark Zuckerberg today. Yes, the good news is Zuckerberg said he could create new jobs — the bad news is they’re all in FarmVille.“

For those of you who don’t know “FarmVille”, it’s the massively popular farming social network game that allows players to manage a virtual farm by planting, growing and harvesting virtual crops and by raising virtual livestock. FarmVille has grown to be Facebook’s most popular application, with over 62 million active users. (more…)

By Dean Baker
Co-Director, Center for Economic and Policy Research

The Obama administration is having a tough time getting its request for $108 billion for the IMF through Congress. Bank bailouts are rapidly losing popularity. And bailouts of foreign banks are probably even less popular than bailouts of U.S. banks.

But, NPR is rushing to the rescue. It had a piece this morning telling listeners that it was important to get the IMF more money to help the poor countries of the world. The piece never mentions the fact that the bulk of the IMF lending at present is going to East European countries, not the developing world.

The basic problem is simple. The West European bankers proved to be every bit as stupid as the Robert Rubin-Citigroup crew in dishing out loans. The main outlet for their bad loans was Eastern Europe, where they made enormous loans denominated in euros.

It is very difficult for the countries of Eastern Europe to maintain their exchange rates against the euro without large amounts of assistance. However, if they let their currencies fall against the euro, then the default rates on the loans from Western European banks will explode.

Of course West Europe is rich enough to bail out its own banks, but the governments in countries like France and Germany know that their people will not stand for this sort of handout. In steps the IMF, with a big assist from NPR, which managed to not even mention East Europe in the piece.

NPR made one major misrepresentation that is worth noting. It referred to a “global savings glut” which it attributes to developing countries’ fears that the IMF won’t have enough resources to bail them out in a crisis, and therefore their need to self-insure. WRONG!!!!!!

Developing countries only began to accumulate massive amounts of foreign exchange (i.e. savings) after the East Asian financial crisis in 1997. There was no talk at the time about the IMF not having enough money. Rather, the explicit motive of most of these countries was to accumulate enough reserves that they would never need to turn to the IMF for a bailout.

The conditions that the IMF imposed on the East Asian countries, who had previously been the superstars of the developing world, were seen as being so onerous that other countries wanted to make sure that they never were forced to turn to the IMF for help. Therefore they deliberately kept their exchange rates under-valued so that they would run huge trade surpluses, which let them rapidly build reserves.

In short, the IMF’s conduct was a major cause of the global imbalances that led to the current economic crisis. NPR turns history on its head in telling listeners that more support for the IMF is the solution.

By Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

There is a huge reality gap between the happy talk about green shoots, banks passing stress tests, the rise in unemployment slowing — and what’s happening out in the real economy, especially if you take a close look at banking and housing, ground zero of the economic crisis. Credit remains tight for all but the most blue-chip borrowers. Despite the Fed’s policy of keeping short term interest rates at just above zero, average rates on conventional 30-year mortgages, now above 5.5 percent, have jumped nearly a full point since April.

Last Wednesday, the FDIC quietly folded a program that was the centerpiece of Treasury Secretary Tim Geithner’s effort to get toxic assets off the books of banks.

The program, whose details were unveiled in late March after six awkward weeks of delay while the administration worked out the details, included special incentives for what Geithner delicately termed “legacy assets.” These are the junk securities on banks’ balance sheets, mostly backed by sub-prime loans, for which ordinary buyers cannot be found.

The Treasury drafted the Federal Reserve to provide special loans, and the FDIC to run a pilot program to attract speculators to bid on the securities. All told, the government was prepared to put up 94 percent of the capital if private investors would put up 6 percent. Government would guarantee most of the losses, and split the gains 50-50.

The plan took Geithner full circle to something like the original strategy attempted by his predecessor, Treasury Secretary Hank Paulson, when Paulson came to Congress last September asking for $700 billion to buy up toxic assets from banks. But after Paulson got Congress to approve the money, he concluded that he couldn’t make the original plan work. Instead, the Treasury pumped several hundred billions into the banks directly. The toxic assets stayed on the banks’ books.

Now, Geithner’s do-over seems to have collapsed, too. There are a couple of reasons why.

First, the government has bent the accounting rules to allow the banks to carry nearly worthless securities on their books at their nominal full value. The Wall Street Journal ran a terrific investigative piece June 3 on how the banking lobby and legislators of both parties pressured the Financial Accounting Standards Board (FASB) to suspend its rules requiring assets to be carried on banks’ books at their current market value.

With this change, banks had no incentive to sell these deeply depressed securities at anything like their actual market value. So if a speculator, armed with Fed funding and a government guarantee against losses was prepared to take a speculative flyer in a bond by bidding, say, 30 cents on the dollar, the bank was not prepared to sell at less than 90. Hence, no deal.

Second, some hedge funds and private equity companies sniffed around these deals and concluded that they weren’t worth the bad publicity or government scrutiny if the deals resulted in big windfall profits (the only kind that hedge funds pursue).

Cooking the books to inflate the value of depressed securities also explains how zombie banks like Citigroup could pass the government’s “stress tests” with flying colors. Citigroup, which has depended on $45 billion in straight government cash and hundreds of billions more in guarantees, was found by the stress-testers from the Fed and the Treasury to need only $5 billion more to be adequately capitalized. This is, of course, preposterous if you value the junk on its books accurately.

So the banking sector, despite the pretty picture painted by the stress-tests and the banks’ recent success in selling stock to investors reassured by the government’s too-big-to-fail actions, remains weak. As a result, banks are hesitant to lend. And this weakness keeps dragging down the rest of the economy.

The flipside of weak banks is a depressed housing sector. Just as the administration chose bailout over government takeover of failed banks, the administration opted for an entirely voluntary effort to induce banks to refinance sub-prime and other mortgages that homeowners could not afford. The program, announced by President Obama February 18, aims to help at-risk homeowners keep their homes.

But the terms of the plan exclude the most hard-hit homeowners. Today, one homeowner in four owns a house worth less than the mortgage on it. However, you can qualify for a refinancing only if the home’s value is within five percent of the value of the loan. In other words, if you have a $300,000 mortgage on a house valued at $250,000, forget about help. And you are also excluded from help if you are behind in your payments – the situation of most people who need help.

Worst of all, the program depends entirely on the voluntary cooperation of banks. The administration will spend up to $75 billion on inducements to banks to vary the terms of loans. But at this writing, well under 100,000 loans have been modified, out of the several million at risk of foreclosure. As a consequence, people continue losing their homes, depressing the value of other homes. The Times recently reported on a woman who heard about the administration, approached her lender, Countrywide (one of the worst sub-prime offenders and now part of Bank of America) and asked for a refinancing. The bank offered a new loan that would save the woman all of $79 a month, and in return the bank wanted $18,000 up front.

Basically, the banks seem to be viewing refinancings as new profit opportunities. The one stick in a plan full of carrots was a provision empowering bankruptcy judges, as a last resort, to vary the terms of a mortgage. The banking lobby went all out to kill this provision. In the end, twelve Senate Democrats voted against it, and the administration made no political effort to save it.

Rep. Alan Grayson of Orlando, one of the hardest-hit parts of the country in terms of foreclosures, tells the story of a woman with a $300,000 mortgage on a house now worth perhaps $60,000. She could afford the payments on a $60,000 mortgage. But the bank would rather foreclose, bear the expenses of carrying the house which will be at risk of vandalism and deterioration until is it is sold. The bank would actually be better off writing down the mortgage to $60,000 and allowing the woman to stay in the house. But few banks see it that way. In similar circumstances in the 1930s, the Roosevelt Administration created the Home Owners Loan Corporation, and the government refinanced mortgages directly. But the Obama administration prefers to work through the private sector, and the private sector is averse to refinancings in most circumstances.

Another progressive Member of Congress, Rep. Marcy Kaptur of Toledo, tells of cascading foreclosures in her district, where banks are selling foreclosed homes at a few cents on the dollar to syndicates of speculators, some from the very sub-prime lenders who caused the collapse. Rather than sell to local government or local non-profits, which want to keep people on their homes, the banks want to get a few bucks onto their balance sheets fast. The situation cries out for more effective national leadership, and the government’s failure to provide that leadership means that the downward spiral in housing will continue.

The weakness of the mortgage relief program and of the banks’ balance sheets have one big thing in common–an administration that is far too deferential to the big banks. For the crisis to be solved soon, rather than lingering on and on, we need direct government refinancing of mortgages, and direct government restructuring of zombie banks.

***

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His recent book is “Obama’s Challenge.”

 

By Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

Every year, the John F. Kennedy Presidential Library gives a Profile in Courage Award to one or more public officials who took a stand that took a lot of integrity and nerve.

Past winners have included Alberto Mora, then the general counsel of the United States Navy, who blew the whistle on unlawful interrogation practices on detainees at Guantanamo Bay (the 2006 winner); and Doris Voitier, school superintendent in St. Bernard Parish, Louisiana (2007) who did whatever it took to reopen public schools in her district in the face of federal and state bureaucratic indifference and hostility after Hurricane Katrina.

You get the idea. Another honoree was Viktor Yushchenko (2005), who narrowly survived a Russian-backed chemical assassination attempt that left him disfigured, to become the democratically elected president of Ukraine.

Two of the three laureates for 2009, who are being honored at a ceremony May 18, are, fittingly enough, Sheila Bair and Brooksley Born, two public servants, one still in office, whose courage has embarrassed three administrations including the incumbent one. The Kennedy Library deserves its own profile in courage award for providing the exclamation point.

Bair, a Republican appointed by George W. Bush, chairs the Federal Deposit Insurance Corporation. She has been an opponent of many aspects of the Paulson-Geithner financial bail-out program, and a supporter of a more direct approach to rescuing distressed mortgages and failed banks. The FDIC is more independent than most bank regulatory agencies, partly because its own insurance funds are at risk when a bank fails and partly because its appointees serve for fixed terms. Bair’s term expires in 2011.

When Timothy Geithner, who had been crossing swords with Bair in his previous job as president of the Federal Reserve Bank of New York, became Obama’s Treasury Secretary, Geithner reportedly sought to get Bair fired, according to credible accounts in the financial press.

He described her as not a good team player. But Bair’s allies, who include her many fans on Capitol Hill, pointedly asked, exactly which team was that? The team Bair had been challenging was team Bush, including Republican Treasury Hank Paulson, Geithner’s predecessor.

Today, Bair sits with President Obama, Geithner, Larry Summers, and the other senior economic officials debating the financial rescue. Obama has invoked Doris Goodwin’s Team of Rivals as his model of how to seek a wide range of voices. But on economic matters, Sheila Bair is often the sole voice of dissent at the grown-ups’ table. As such, she has had to walk a very delicate line offering different views without seeming disloyal.

How did a Republican come to embrace policies that are less captive to Wall Street and more supportive of public solutions? Bair is a Kansas Republican, who came to Washington with then Senator Bob Dole, and served as his senior staffer on the Senate Finance Committee. In an echo of the populist revolt, Kansas bankers complain that the bailout favors Wall Street over Main Street. On this score, there is nothing at all the matter with Kansas.

Bair’s Profile in Courage citation reads:

“Sheila Bair has been called a “lone voice in the wilderness” for her early warnings about the sub-prime lending crisis and for her dogged criticism of both Wall Street’s and the government’s management of the subsequent financial meltdown. As early as 2001, Bair was urging sub-prime lenders to agree on a set of best practices to prevent abuses. Since the onset of the current crisis, she, more than any other government official, has pushed for direct assistance to distressed homeowners as part of the overall effort to stabilize the financial system, a move fiercely resisted by many leaders in both the public and the private sectors. Recently, however, the government has begun to implement many of her mortgage-modification proposals in an effort to slow the alarming increase in foreclosures.”

Bair’s co-honoree is another lonely voice of early warning in the current financial collapse. As President Clinton’s chair of the Commodity Futures Trading Commission, Brooksley Born began raising warning that customized derivatives not traded on exchanges were a financial time bomb. Nobody knew how much risk their underwriters were taking, and there was no “price discovery” as there is on an open financial exchange where traders set prices minute to minute. Born distributed for comment a proposed regulation that would have required greater supervision of these so called over-the-counter derivatives. This was back in 1997, a full decade before the meltdown. She warned in congressional testimony that unmonitored trading in derivatives could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it.” This, of course, is precisely what occurred with AIG and its writing of trillions of dollars of credit default swaps backed by no reserves.

For her prescience, Born was excoriated by Robert Rubin, Larry Summers, Alan Greenspan, as well as by the Clinton sub-cabinet official who has been nominated to chair the same CFTC, Gary Gensler, former Treasury Undersecretary. They directed her to stop making noises about regulating derivatives on grounds that this could destabilize markets. But Rubin, Summers and company did not just pressure Born, who eventually left office in 1999. Rubin, Greenspan and then SEC chair Arthur Levitt, Jr. expressly requested Congress to prevent Ms. Born from issuing such regulations. And in 2000, Sen. Phil Gramm of Texas, then the chair of the Senate Banking Committee, pushed through legislation not only shackling the CFTC when it came to derivatives regulation but also exempting energy trades as a favor to Enron.

Born’s Profile in Courage citation reads:
“In 1998, as chair of the Commodity Futures Trading Commission (CFTC), Brooksley Born unsuccessfully tried to bring over-the-counter financial derivatives under the regulatory control of the CFTC. The government’s failure to regulate such financial deals has been widely criticized as one of the causes of the current financial crisis. In the booming economic climate of the 1990′s, Born battled other regulators in the Clinton Administration, skeptical members of Congress and lobbyists over the regulation of derivatives, warning that unregulated financial contracts such as credit default swaps could pose grave dangers to the economy. Her efforts brought fierce opposition from Wall Street and from Administration officials who believed deregulation was essential to the extraordinary economic growth that was then in full bloom. Her adversaries eventually passed legislation prohibiting the CFTC from any oversight of financial derivatives during her term. She stepped down from the CFTC in 1999 and returned to a distinguished career in public interest law.”

This past week, Treasury Secretary Geithner announced proposed legislation that would impose ground rules on derivatives through private clearing houses.

But Geithner’s plan still would not go as far as what Brooksley Born proposed long before the extent of the abuses became a full-blown catastrophe. Well placed sources have told me that Summers and Geithner embraced partial reform largely because two other brave public officials have been asking very tough questions of Treasury nominees at confirmation hearings and have threatened to block Senate action on them. These are Senators Bernie Sanders of Vermont and Maria Cantwell of Washington State. Perhaps they will be next year’s Profiles in Courage winners.

***

Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos www.demos.org. His best-selling book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.“

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

We are hearing a lot about the need for a new “Pecora Commission,” to conduct a comprehensive investigation of all the Wall Street abuses that led to the financial collapse and the general recession that has followed. House Speaker Nancy Pelosi has called for such a commission. A House floor vote on a bill sponsored by Rep. John Dingell is expected this week. The bill would establish an investigative panel with full subpoena powers. A companion bill, the Fraud Enforcement and Recovery Act, has bipartisan Senate sponsors, including Senators McCain and Grassley as well as several progressive Democrats. These efforts are an implicit rebuke to the Obama administration’s economic team.

The original Pecora committee was not a commission, but the Senate Banking committee operating in investigative mode. Its chief counsel beginning in late 1932 was a former New York City prosecutor named Ferdinand Pecora. The committee began its work in March 1932, and Pecora became chief counsel later that year. It continued throughout 1933 into early 1934. The new Democratic chairman, Sen. Duncan Fletcher, who took office when the Democrats began the majority party after the 1932 election, kept Pecora in the job. Today, Fletcher is a footnote; Pecora is the name people remember. (As a former chief investigator of the Senate Banking Committee, I love to see Senate staffers make good.)

Pecora’s work unearthed numerous conflicts of interest–a “preferred list” of investors (including President Coolidge and Supreme Court Justice Owen Roberts) kept by Morgan who had access to lucrative securities offerings not available to ordinary customers; the unsavory practice of bank presidents of borrowing money to short stocks, including sometimes their own; and the first wave “securitization,” in which investment banks made sketchy loans and repackaged them as bonds for unsuspecting investors.

Pecora’s work led to several resignations of bank executives, but more importantly in created a climate for reform legislation. Pecora’s findings helped inform the Glass Steagall Act of 1933 separating investment banking from government-insured commercial banking, the Securities Act of 1933 and the Securities Exchange Act of 1934. Most importantly, it functioned as a public shaming of Wall Street. It thus helped change the political climate so that radical reforms could proceed. President Roosevelt encouraged Pecora’s work and he encouraged the public indignation. Pecora was subsequently appointed by Roosevelt as a commissioner of the newly created SEC.

The Obama administration is proceeding very differently, and it has little enthusiasm for a Pecora Commission or for recriminations against financial elites. There has been no dramatic rupture with Wall Street. Rather, Obama’s economic team is working hand in glove with the same investment banking firms and commercial banks that invented and underwrote the financial products and subterfuges that creates the collapse.

Two of Obama’s top people, Lawrence Summers and Rahm Emanuel, did lucrative stints on Wall Street before returning to government (with an outlook substantially influenced by their time in the financial markets.) A third senior official, Treasury Secretary Tim Geithner, was a senior member of the Bush administrations financial crisis team, in his previous job as president of the Federal Reserve Bank of New York. So when Obama succeeded Bush, there was a seamless handoff from Geithner to…..Geithner.

Several other senior Obama economic officials were part of the Clinton economic team that was responsible for so much of the deregulation. Rather than channeling and affirming public indignation as Roosevelt did, the Obama sees populist backlash as a dangerous force to be damped down.

Although there have been some good individual hearings by particular committees on aspects of the collapse, neither of the key legislative committees in the House or Senate has shown much appetite for a Pecora-style investigation. Rather, investigative efforts have been diffused among the Congressional Oversight Panel chaired by Elizabeth Warren, which was created to oversee see the Treasury’s disbursement of $700 billion in bailout money, chaired by Elizabeth Warren; the reports of the Special Inspector General; investigative work by New York Attorney General Andrew Cuomo; and some good hearings by subcommittees. All of the Democratic committee chairmen, however, are under subtle pressure from the White House not to embarrass the administration.

But by refusing a Roosevelt-scale break with Wall Street, the administration embarrasses itself. So we need a new Pecora committee, less to unearth new information than to focus public attention and build support for sweeping reform. Between the work of the Special Inspector General, and the work of other congressional committees, and investigative reports of the financial press, much of the core story has already been unearthed. Commercial and investment banks, their hedge fund counterparties, the mortgage companies and the corrupted credit rating agencies, perpetrated systematic frauds on the public using levels of speculative borrowing that any uncompromised regulator would have shut down. The fraud was central to the business model. William Black has coined the useful phrase, “control fraud,” meaning that the fraud was systematic and emanated from the very top of the business.

With Larry Summers, Tim Geithner, and Ben Bernanke working closely with major investment bankers to restart the system of securitization, this time with the Federal Reserve’s money and loan guarantees from the Treasury, there will be a titanic struggle over what kind of regulatory system to have going forward. Wall Street is resisting any form of regulation of hedge funds and private equity companies, and hopes that a voluntary system for registering derivatives such as credit default swaps will head off stronger medicine.

For a time, it appeared that the issue of regulation of the shadow banking system would be finessed by making the Federal Reserve the “systemic risk regulator.” The Fed (the weakest regulatory agency of the lot) would decide what entities needed additional surveillance.) But that scheme, originally proposed by former Treasury Secretary Hank Paulson in 2006, no longer has much support in Congress. So all of the issues about what to regulate, how, and by whom, are still very much on the table–and a consensus still needs to be created. We need a latter day Pecora Committee to arouse the public and the back-benchers in Congress. Otherwise, the reform moment will pass, and we will revert to something very much like business as usual.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”

 

By Dean Baker
Co-Director, Center for Economic and Policy Research

The media coverage of the auto bailouts has focused on the need for union autoworkers to take big pay cuts, causing them to once again miss the real story. The Fiat-Chrysler deal shows that the pay problem is at the top, not the bottom. At the end of the day, the new Chrysler is still likely to be producing most of its cars in the United States. What the new company will be getting from abroad is technology and top management.

This big story was so easily missed because it runs against one of the main myths that our elites have cultivated about the US economy: that the country has a “comparative advantage” in highly skilled labor. In this story, the United States will continue to lose manufacturing and other “less-skilled” jobs as its economy becomes more concentrated in highly skilled sectors.

This story was convenient for our elites because it meant that the decline of manufacturing was a necessary, if sometimes painful, part of a natural economic progression. It also justified the growing inequality in US society that benefited not just Wall Street bankers and CEOs, but also millions of doctors, lawyers, economists, and other highly educated workers. These people took their six-figure salaries as a birthright, even as the pay of less educated workers stagnated or declined.

While this story of the US becoming a high skills center in the world economy may have been comforting to the elites, and was widely promoted by economists and the news media, there was never much truth to it. Highly skilled professionals did well in recent decades not because they succeeded in international competition, but rather because they were largely sheltered from it.

Trade agreements like NAFTA were explicitly designed to remove any barrier that made it difficult to export manufacturing goods to the United States, thereby placing US manufacturing workers directly in competition with their much lower paid counterparts in the developing world. Most of these restrictions had nothing to do with tariffs. Instead the key issues were rules protecting investment in the developing world along with limits on the ability of the US to exclude imports through safety or environmental regulations.

There has never been any similar effort to eliminate the barriers that prevent professionals from the developing world from coming to the United States and competing directly with their US counterparts as doctors or lawyers or in other highly paid professions.

The economists and the media somehow failed to notice that professionals were intentionally sheltered from international competition and instead just trumpeted them as the winners in the global economy. We were just treated to a beautiful example of this double standard when the media and the economists got all huffy about the “buy America” provision in the stimulus bill that might have protected a few manufacturing jobs in steel and other industries.

While this provision was roundly condemned and eventually watered down, the buy America provision in the Treasury’s latest bank bailout bill went completely unnoticed. This provision requires that any investment manager taking part in the program be headquartered in the United States. Even though the argument against protectionism in financial services is identical to the argument against protectionism in steel, no one bothered to make the argument when Wall Street was the beneficiary of protectionism.

The end result of this protectionism for those at the top is a bloated overpaid sector of top managers, which is what we saw at Chrysler. If we compare wages for assembly-line workers in Europe and the United States, there would not be much difference between the pay of UAW members and their counterparts in Europe. However, there would be a very large difference between the multi-million dollar pay packages of the top executives at the US companies and their European counterparts. The pay gaps persist among the more highly paid engineers and management personnel.

Therefore, it was only logical that a bailout of Chrysler would seek to take advantage of the lower cost management and design skills available at a European car company like Fiat. In Chrysler, as in other companies, the high pay packages for these people are like an anchor dragging them down in international competition. If the US is to be competitive in the 21st century, we must either bring the pay of those at the top back down to earth or we should look to follow the lead of Chrysler and contract out for these services.

Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

This piece was first published on Huffington Post.