Posted on 12/07/2005 11:23:11 AM PST by Sonny M
PRESIDENT BUSH'S VISION OF SOUND economic policy has remained remarkably constant over the last five years--tax cuts, free trade, and a generous amount of immigration. And why not? Low taxes, free trade, and new immigrants have benefited our economy over the past quarter century, and helped produce a remarkably successful economic performance after the shock of 9/11.
Yet all does not seem to be well. Americans are unhappy about the president's management of the economy and pessimistic about the future. Maybe popular sentiment is simply shortsighted, or uninformed. But there is another, more rational reason for voter discontent: Times have changed, and Republicans have either not noticed or not adapted to the new realities.
Consider, for example, the thinking behind the president's recent trip to South America. He risked all of the bad images that his staff had to know would result from the protests skillfully organized by a Castro-loving Venezuelan president and a cocaine-loving Argentine footballer to visit a region with which we already run a staggering trade deficit, to urge it to accept trade deals that offer it even better access to our markets. The president undoubtedly believed he needed to push his free trade agenda. After all, free trade is one of the policies in which he believes deeply, and for good reason. No need here to rehearse the best-known passages from Adam Smith, or to tout the contribution that the liberalizing of trade since World War II has made to our prosperity, and to the prosperity of those countries that have participated in the trade-opening policies that Bush wants to push forward.
What may have gone unnoticed by the president, though, is that the world has changed since he decided to take on the trade unions and protectionists. For one thing, we have learned that our enthusiasm for freer trade is not exactly matched by our trading partners. The European Union will not, no matter how many meaningless concessions its rather unreliable negotiators make, do anything to expose its farmers to the rigors of international competition. Or to stop the flow of subsidies to Airbus, subsidies that make life difficult for Boeing. And it is clear the Chinese have no intention of ending the pilferage of our intellectual property.
Add those up and you have a world where the industries in which we have a real advantage--the three A's of agriculture, aircraft, and audiovisual products--are facing an uphill battle. Throw in a bit of currency manipulation by the Chinese, the Treasury's recent denial notwithstanding, and you have good reason to wonder whether the president should be spending political capital on new trade deals. True, any good economist will tell you that U.S. consumers benefit from free trade even if our partners choose to be foolish enough to enrich us by subsidizing their exports. But any really good economist would respond with two important caveats.
First, leaders must concern themselves with political economy, not economics. In addition to efficiency, relatively easily measured and understood, there is the more elusive issue of equity. It is Americans' sense that equity matters, that ours should be a society in which opportunity should be equally available to all. Hence the appeal of calls for "fair" as well as free trade. Never mind that these calls come from self-interested, protectionist trade unions and environmentalists, the former eager to protect their members from foreign competition, the latter eager to stop the economic growth that they mistakenly believe causes environmental degradation. A recitation of the efficiency and growth-inducing consequences of free trade is not an adequate rebuttal. Voters understand that there is more to life than efficiency, and want their leaders to make deals that are fair as well as economically productive.
Second, any really good political economist will have read more than excerpts from The Wealth of Nations. Adam Smith intended his words for policymakers--he was not an idle academic scribbler. He aimed his analysis at, among others, "that insidious and crafty animal, vulgarly called a statesman or politician." But it was not only because of that audience that Smith was careful to frame his analysis of free trade in nuanced terms. It was also because in supporting free trade, as in other matters, Smith was moderate and practical.
So Smith called for care in applying his principles. Yes, he wanted import duties repealed. But he also added:
Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable. Not as considerable as special pleaders claim, but "very considerable" nevertheless. Workers might find new jobs, and funds expended on supplies could be deployed elsewhere. But the fixed capital devoted to a business "could scarce be disposed of without considerable loss. The equitable regard, therefore, to [the manufacturer's] interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning."
It is, of course, not news that those industries seeking protection often take "gradual" to mean "never"--witness the failure of the apparel industry to be satisfied with a 10-year warning that its special protections were to be removed. But it remains the case that free trade creates losers as well as winners. And we should not assume that the losers are always less worthy of our consideration than the winners, especially if we can develop policies based on distinguishing the deserving losers from the undeserving losers.
In the latter category are members of trade unions that exploited their monopsony power by extracting extortionate compensation from monopoly providers--think auto workers in the days when General Motors could easily pass on its increased costs, or airline pilots in the days when regulation allowed the airlines to pass all wage costs on to consumers. A creative gale of destructive competition from imports, in the case of autos, or new entrants when regulation was ended, in the case of airlines, is just what the efficiency doctor ordered, and has resulted in a massive wealth transfer from monopolistic producers and monopsonistic unions to consumers. There is an unmistakable equity ring to such an efficient transfer.
But we also must consider the deserving people adversely affected by free trade--the mill worker who labored for 30 years, paid her taxes, educated her children. Through no fault of her own she finds herself unable to compete successfully with lower paid laborers in China and other countries.
The mill worker's plight stems from a fundamental change to which the administration has yet to respond. In recent years we have seen a dramatic change in the worldwide supply of labor--the supply of more-or-less undifferentiated laborers competing for work has trebled, from around 400 million to 1.2 billion. Any such massive increase in supply can have only one consequence (other things being equal, of course): a severe fall in price. And until the new entrants to the world labor force become affluent consumers, if ever they do, that fall in price will not be reversed.
MEANWHILE, partly as a consequence of falling labor costs, and of the pressure increased competition puts on American businesses to pursue, and laborers to accept, efficiency-enhancing measures, profits are rising. And as the members of the undifferentiated labor force struggle to compete, or to gain the education and skills that will differentiate them from the millions of unskilled members of the world labor force, the gap between their incomes and those of the skilled and educated widens. Worse still, if people tend to marry their economic and social equals, and if studies that show an increasingly high correlation between the income of children and that of their parents are to be credited, we may be witnessing a lessening of a distinctive characteristic of the American dream--social and economic mobility.
How has the administration responded? In two rather perverse ways. First, it has asked Congress to extend tax cuts for corporations and upper income families, and tax relief for dividend income and capital gains. Combined with a lack of spending restraint, some of these cuts are contributing to a rising deficit at a time when the economy is growing at an annual rate of 4 percent, and hardly in need of a fiscal stimulus.
More important, are we certain that policies that were appropriate to the world in which Ronald Reagan lived over two decades ago, and may even have been appropriate to the world as it existed when George W. Bush moved from the Texas to the national and international stages, are still the ones we should pursue now? It was not so long ago that reductions in marginal tax rates were necessary to increase incentives to work and risk-taking. But with taxes now lower than in modern memory, corporate profits so high that the boardrooms of America are populated by executives who can't figure out what to do with all that money, and with untold billions in the hands of hedge fund managers for whom no risk seems too great, is it unreasonable to wonder whether we need a further tilt in favor of high earners and entrepreneurs? One can only hope that someone in the administration is charged with the responsibility of figuring out a proper conservative response to this change. That response might, for example, include a reduction in the regressive and job-killing payroll tax, with the revenue shortfall recouped by taxing the oil imports that pose an increasing threat to our national security.
The second way in which the administration has responded is to persist in spending political capital on pushing freer trade agreements through Congress. This might be a tenable policy if it were accompanied by effective programs to meet the needs of what I have called the deserving displaced. But it hasn't been. After all, the policy question is not, "Are we for or against freer trade?" Or at least it ought not to be. The harder and more relevant question--the one that Adam Smith would put to us--is, "How do we obtain the benefits of freer trade in an equitable manner?"
The answer is to continue to support trade-opening measures, but accompany them with mechanisms that transfer some of the benefits of free trade from the winners--in large part passive recipients of those benefits--to the deserving losers. The development of mechanisms that actually achieve this sharing objective is no easy task. For any such program must be administered by government, and as we have recently been reminded by reconstruction efforts from New Orleans to Baghdad, government is not good at implementing even the best crafted policies.
A paper by my Hudson Institute colleague Diana Furchtgott-Roth considers 13 government programs designed to assist displaced workers. These attempt to incorporate both the notion of compassion and the idea of transferring some of the gains of trade and change from the winners to the losers. But, to cite just one example of the gap between aspiration and achievement, Congress passed and the president signed a Trade Adjustment Assistance program in 2002, providing among other things that older workers displaced by foreign competition receive from the government checks covering half the difference between the wages at their old jobs, and what they are able to earn at such jobs as they find after being laid off. Great idea, poor implementation. Because the forms are complicated, and the number of hoops through which an applicant must jump seemingly infinite, only 1,403 of the tens (by some reckoning, hundreds) of thousands of displaced workers received checks between August 2003 and December 2004. For example, only 41 of the 4,800 workers laid off by Pillowtex in North Carolina applied and qualified.
Until we can do better than that, would it not be well for the president to direct his attentions to helping displaced American laborers before seeking to gain what has often proved to be only nominal access to overseas markets for our manufacturers, in return for still greater access for foreign businesses to our much larger market?
What is true for trade is true, also, for immigration. Immigration, legal and illegal, creates winners and losers. The most obvious winners are the immigrants themselves, and the families to whom they repatriate a large portion of their earnings. Other winners are employers and people with pools to clean and lawns to mow. Losers are the unskilled workers who must compete for jobs with immigrants--estimates are that immigration reduces the wages of the unskilled by about 5 percent--and the local communities where large numbers of immigrants congregate, who bear a significant burden in social services for new immigrants.
Now, we surely don't want to deprive ourselves of an infusion of people who come here to work and live the American dream. We surely don't think we can deport some 10 million people who have slipped across our borders illegally. Equally surely, we shouldn't want to have an increasing number of people who live here but remain outside the American mainstream, cut off by an inability to speak our language or understand our history. A president intent on solving the immigration problem would insist on a solution that consists of a full-out fight to restore assimilation as a goal, while at the same time forging a generous policy of attracting and welcoming newcomers--and compensating "losing" communities and workers.
So, what is to be done? The place to begin is with a realization that in all of these policy areas, the alternatives on offer by the Democrats are nonexistent, or counterproductive. If fresh thinking on trade, taxes, or immigration is going to happen, and if such thinking is going to become politically viable, it is going to happen because conservatives make it happen. If the Bush administration wants to take the lead in this rethinking--as it may be doing in the case of immigration--more power to it. If it is preoccupied elsewhere, then the task falls to others--in Congress, in think tanks, and in the broader conservative policy community. After all, if Bush wants to focus on winning the war in Iraq, many of us wouldn't complain. Conservatives have in the past won when they put daring but sensible policies at the service of an attractive candidate and a vote-generating machine. The last of these is in place; the search for the candidate will begin in due course; it is fresh thinking on policy that is most urgently needed.
Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
"a generous amount of immigration"? I guess they dont get out to Kalifornia much.
But it remains the case that free trade creates losers as well as winners. And we should not assume that the losers are always less worthy of our consideration than the winners, especially if we can develop policies based on distinguishing the deserving losers from the undeserving losers.
Sorry but it is not a matter of WORTH but numbers. There are more winners. The winners win more than the losers. We already tax the winners to compensate those who lose jobs due to trade.
How has the administration responded? In two rather perverse ways. First, it has asked Congress to extend tax cuts for corporations and upper income families,
Since income taxes are only paid by upper income people, then income taxes can only go to upper income.
That was about as far as I could in this bilge. Yeah based on do data we should give up the free trade policies that have led to the great expansion since the end of WWII. At least this guy admits the past success, but for no reasons he says we should change policy?
The author needs to take Ammodium AD.
Actually, Smith had much more to say than that.
Excerpted and condensed from:
Of Restraints upon the Importation from Foreign Countries
of such Goods as can be produced at Home
"There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry...
As there are two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry, so there are two others in which it may sometimes be a matter of deliberation; in the one, how far it is proper to continue the free importation of certain foreign goods; and in the other, how far, or in what manner, it may be proper to restore that free importation after it has been for some time interrupted....
- The first is, when some particular sort of industry is necessary for the defence of the country....
- The second case, in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former....
- The case in which it may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods is, when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours....
- The case in which it may sometimes be a matter of deliberation, how far, or in what manner, it is proper to restore the free importation of foreign goods, after it has been for some time interrupted, is, when particular manufactures, by means of high duties or prohibitions upon all foreign goods which can come into competition with them, have been so far extended as to employ a great multitude of hands. Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable....
So while Smith DID warn of social disorder if tariffs were lifted too quickly, he ALSO cited instances where import duties were in our best interests. Instances that are also being ignored by the Bush Administration.
Isn't it amazing how fast so called "Conservatives" turn into big Government Liberals when they want the Government to do something for them on Trade or Immigration. Guess all that "limited Government" talk was all just a bunch of lies hmmm Buchannanites????
I guess all that ranting about Government Spending we have heard from these clowns for the last 2 years is just them blowing smoke out their butts.
You really don't understand much of anything do you ?
In Bushonomics winners do NOT outnumber losers. If they did he would have swept to routine reelection instead of coming within an inch of losing. As the article correctly sees, free trade and immigration depress the wages of that HALF of the American workforce that is composed of regular Joes.
This may come as a shock to you, but most people are average. That's why they call it "average". Most people are not college educated white collar professional material. Most people are not one shred more skilled than their counterpart in the Third World who is doing precisely the same job for vastly less money.
I apparently understand much more than you. But at least you knew enough to call yourself a Sham.
But I in fact know that wages are rising in the US. In fact know that in a dynamic economy old factory jobs tend to go the way of the whale oil sales man and the buggy whip manufacturer. Too bad you don't.
You repeat the stock nonsense of the free trade types.
Are you dimly aware of the fact that wages for non-supervisory employees are most definitely NOT going up and in fact adjusted for inflation they are dropping ? That's the wages of all those Americans who DON'T live off of returns on investment and corporate profits.
Free trade and cheap labor is wonderful for Americans whose income comes from investments and corporate profits. It is lousy for Americans whose income comes from paychecks.
You repeat (and repeat is too kind a term) the stock garbage about "buggy whip makers" as if this were "creative destruction". It isn't. The destruction is of the American laborer, the creation is of the Third World laborer because on cost of labor the American regular Joe has no hope of competing.
I would like point out something also.. There is nothing in the Constitution that says a person has a right to good paying job.
Do you seriously think a nation of net downwards social mobility is going to wish to pay the cost of being a superpower ?
Yep... Besides people who are the bottom for the most of thier lives have themselves to blame. If they don't want do what it takes to move up that is their fault.
I know it makes you Dims mad when we commoners do anything of our own free will. I know you think God put you here to tell us what to do, think, buy, exchange etc.
Sorry, but no thanks. I believe in freedom not statism like you Dims.
Only a libertarian could be such a smug fool.
In a system that pits average people in a rich country against average people in a poor country, capital seeking the lowest cost of labor will relocate among the average people in the poor country. This creates a conflict that average Americans can never hope to win. I realize that you think average Americans have only themselves to blame because they should have been born geniuses with the right to live in your world but alas they didn't put in the hard work to select better genes.
A good system does not require a genius. A good system doesn't require a hero. Just normal people putting in normal effort. An army that needs a Napoleon at the top to win is a bad army. A football team that needs a Joe Montana as quarterback to have a .500 season is a bad team. A car that cannot be easily maintained by manual laborers of average intelligence is a bad car. A free trade system in which an average person of average intelligence cannot avoid net downwards social mobility is a bad system.
Free trade has lost the war of ideas. That is why CAFTA could only pass at the 11th hour with massive pork and arm twisting.
The commoners have chosen, child. They have decided that your free trade beliefs just don't work. Americans who live off of paychecks have not seen their lives get better.
Ok comrade why don't we pass a law stating that every company must hire only americans and can't fire people and pass another law that states company can only do business in America.. Also why don't we raise tariffs... Yes I'm a libertarian.. I would like to point out, there have always been rich people and poor people..
Libertarians, like atheists, are semi-learned fools who aren't nearly as smart as they think they are.
Can one honestly describe as intelligent an ideology that posits a swinish, almost sociopathic, kind of individualism on one side and small government on the other ? You can't have libertarian government in a secular, individualistic, two child family culture. You can only have libertarian government in a religious, traditional culture of 5+ child families. A society of 5+ child families can nurse its sick and take care of its elderly. In a two child or less family culture there is no one to look after Mom so the state becomes the primary health care provider and old age caregiver. You can't have a libertarian government in a culture where most people don't expect anyone to be there for them in their old age. You can only have Victorian government in a culture of Victorian families.
Ok Dim if you says so, a win ala CAFTA is a loss. Free trade has so lost the war of ideas that the US essentially has no tariffs.
What is your DU handle so I can spot you went I read a dummiefunnies thread?
Good idea. Keep to little words so you can remember how to spell them.
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