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Mark S. Sniderman |

Executive Vice President and Chief Policy Officer

Mark S. Sniderman

Mark Sniderman is executive vice president and chief policy officer at the Federal Reserve Bank of Cleveland. He is responsible for guiding the Bank’s economic research and community development efforts.

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07.02.08

Economic Trends

That Giant Sucking Sound

Mark Sniderman

Republics are created by the virtue, public spirit, and intelligence of the citizens. They fall, when the wise are banished from the public councils, because they dare to be honest, and the profligate are rewarded, because they flatter the people in order to betray them.

—Joseph Story, Commentaries on the Constitution of the United States, 2d ed., vol. 2, chap. 45, pg. 617 (1851).

Historians may decide that Ross Perot’s greatest contribution to the American political landscape was not his prediction of the job losses NAFTA would cause, but his memorable description of the result he feared. “That giant sucking sound,” he said, was the noise of U.S. jobs being pulled into Mexico. Since his phrase entered the political lexicon, it has been used to describe the draining of U.S. jobs into China and India, Mexican jobs into China and India, and even Western European jobs into Eastern Europe. It would be no surprise if the Chinese began using the same phrase to describe their country’s loss of jobs to Vietnam.

Perot’s intent was to warn the U.S. public about the pernicious effects he believed NAFTA would cause. His phrase resonated with the public: Everyone has heard that sucking sound, most often when something is being swept away (into a vacuum cleaner, say), or siphoned off (down a bathtub drain). Despite all of the passion NAFTA provoked in its supporters and detractors, economists are still divided about the agreement’s ultimate consequences for U.S. and Mexican employment.

Has the phrase outlived its usefulness? I think not: There are plenty more sucking sounds to worry about.

The loudest is the sound of earth’s atmosphere sucking in the greenhouse gases that human inventions are spewing out. Although opinions differ about the effect of human activity on the global warming trend, few dispute the rise in greenhouse gas emissions. Controlling these emissions presents an enormous political challenge for heads of state, who feel that accepting emission limits is tantamount to imposing limits on their citizens’ employment and income growth. At the same time, we know that failure to find a solution could have disastrous consequences for life—human and otherwise—on the planet. So every time you drive a car, fly in a plane, enjoy cooling or warming indoors air, or consume products manufactured using coal, petroleum, or natural gas, remember to listen for the giant sucking sound of hydrocarbons being inhaled by earth’s atmosphere.

Another worrisome sucking sound is caused by the speed with which we are siphoning off potable water from our lakes, rivers, and underground aquifers. Climate change, urbanization, and global population growth are combining to create water shortages in many parts of the world. In the United States, several major metropolitan areas have undergone serious water shortages in recent years and been forced to impose rationing. Although many people attribute recent water scarcities to a period of unusually low rainfall, we know that demand for water in arid regions of the country has been driven up by growing populations and agricultural usage. In many instances, water rights established by treaties or grants more than a century ago are still in force, leading to conflict with present realities. Unfortunately, there may be little scope for market forces to play a strong role in allocating water for its most beneficial uses, or political institutions to protect ground and surface water from being depleted by overuse, much as some fishing grounds have been depleted in the absence of sustainable use agreements.

The third vortex—you have probably anticipated this one—is the federal budget deficit. There was a time when people erroneously believed that fiscal rectitude required that the budget be balanced annually. Economists debunked that belief, replacing the one-year balancing interval with something more akin to the business cycle; their logic was that in times of high unemployment and resource slack, fiscal deficits would help stabilize the economy, while in times of low unemployment, surpluses would do the same. The prudent course was to adopt spending and tax programs that would make for a balanced budget in times of full employment.

In the long term, our current fiscal posture is unsustainable. We have become accustomed to thinking that if an objective is worthwhile, it is worthwhile to subsidize it, increase spending on it, or insure private lenders against the risk they assume for it. Granted, we have a great many national needs, some of them worthy of being financed through debt rather than current taxes. But our current trajectory must be corrected, and the longer we delay that correction, the more disruption we invite.

Carbon and water imbalances may be more dire than a fiscal mismatch, but a large fiscal footprint is not a thing to be taken lightly. I think Mr. Perot would agree.