Fixing the Economy: A Tall Order

American capitalism is broken, and little that newly empowered Republicans and surviving Democrats offer is likely to fix it.

American prosperity was built on technology, fair competition and sound finance.

From Thomas Edison to Steve Jobs, America was repeatedly transformed by inventors coming up with new products, raising capital and earning fortunes in the marketplace.

In established lines, intense competition compelled American enterprises to make and move goods more effectively than businesses abroad. When American companies came up short, foreign competitors like

Toyota

(TM) - Get Report

came here, and domestic businesses like

Ford

(F) - Get Report

reinvented themselves to re-challenge foreign rivals.

In recent decades, the process was enhanced by a U.S. push for global free trade and intensified by domestic deregulation. Sadly, this has resulted in a wide open U.S. market abused by foreign competitors, U.S. multinationals and Wall Street financiers.

China, Japan and others are free to sell whatever they like in the United States, while they rig their currencies to subsidize exports, erect tariff and nontariff barriers to U.S. sales in their markets, and require American companies to give away technology to make and sell products in their markets.

American companies like

Caterpillar

(CAT) - Get Report

, General Motors and

General Electric

(GE) - Get Report

relocate production to China and other places, become co-opted by their foreign hosts, and then lobby against U.S. government policies that would redress these competitive imbalances.

The result is a huge U.S. trade deficit that stifles demand for American- made goods, suffocates jobs creation and smothers the economic recovery.

At home, New York financial houses have cynically abused deregulation. Five or six big banks, with help from government money, have monopolized deposits enough to dictate CD rates and extract big profits on corporate loans.

Only big multinationals have the sophistication and leverage to do business with banking behemoths.

Wall Street has cut off capital to the 8000 regional banks that service small and medium sized businesses that create most jobs in the United States, and these Gotham City giants pay their executives glutinous bonuses for ripping off monopoly profits

Now, about 3,000 of regional banks face extinction, and ordinary Americans can only borrow money at government-run

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

or at extortionist rates on big bank controlled credit cards.

Enter the Republicans with their Pledge to America. Nowhere does it explain how to fix the trade with China and other mercantilists, or the banks. And deregulation and tax cuts will only make the wealthy on Wall Street wealthier.

President Obama's push for green industries won't fix much. Batteries for electric cars, solar panels and windmills simply can't replace most of the jobs lost to imports, and foreign competitors in government protected markets are working on the same ideas.

Redistributing income, a favorite Democratic ruse, through health care subsidies and higher taxes only destroys more jobs. It is reminiscent of Roman emperors giving away grain to restive citizens.

Americans must address the world as they find it, and not as they wish it would be.

The World Trade Organization and many other institutions of global governance have failed and do not serve U.S. interests.

It is not isolationist to say the U.S. government should start looking out for Americans as well as Beijing and other governments look out for their citizens. It's high time to require many products patented and sold in the United States be made here.

The adventurers on Wall Street don't need to be taxed more. They need their toys taken away. Once again, separate the banks from the Wall Street casinos and bust up the biggest banks to restore competition.

Don't hold your breath. Both parties are too focused on 2012 to do any heavy lifting.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.