Vijay K. Mathur

Rep. Ron Bishop of Utah has introduced a constitutional amendment in the House. It states that, "Any provision of law or regulation of the United States may be repealed by the several states, and such repeal shall be effective when the legislatures of two-thirds of the several states approve resolutions for its purpose that particularly describe the same provision or provisions of law or regulation to be repealed." The 10th Amendment states, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Among many people, politicians and media pundits, there seems to be confusion about the operation of free markets. Sometimes the word capitalism is used to propagate the notion of free markets. However the word capitalism came into use almost one hundred years after the publication of The Wealth of Nations in 1776 by Adam Smith, the most ardent supporter of free markets. Capitalism should not be confused with the system of free markets. Like markets, capitalism is evolutionary, however it encompasses not only economic organization but also political and social organization.

We are hearing the call for protectionist policies from the political right and left in response to the manipulation of yuan (also called renminbi) by China. An academic study by Thomas Oatley in Business and Politics, 2010, argues that trade politics and exchange rate politics are interrelated. He finds that as the exchange rate, adjusted for price, appreciates beyond some optimum level, a large share of businesses competing with imports support protectionist policies. Undervaluation of the currency by China makes U.S. exports more expensive than Chinese imports. This situation is partly due to our rising trade deficit with China, which increased 171 percent from 2000 to 2009.

It is understandable that most Americans are worried about the unemployment rate, and they want the Obama administration to do something about it. However, government is limited in its capabilities to generate employment directly unless it creates public employment. Government can only attempt to stimulate the economy's growth temporarily using fiscal and monetary policy, so that the private sector feels confident enough about the future demand for their products to hire more people. Even if the markets for goods and services grow, employers are reluctant to add to the payroll if there is demand uncertainty and/or lack of financial capital.

Since the enactment of the stimulus package, the Obama administration is under attack by conservatives and tea partiers for increasing public debt. If the administration had not injected public spending to offset the precipitous decline in private spending, the economy would have faced depression and worsened debt situation. Some concerns are valid, however many advanced by tea partiers and their sympathizers are not grounded in reality.

Budget deficit increases have been ignored by politicians and policy wonks on both the right and left from the 1970s, with the exception of a brief period of surplus from 1998 to 2001. Budget surplus during 1998-2001 turned into budget deficit starting in 2002.