Thursday , 19 October 2017


NAFTA (and other trade deals) Has NOT Gutted American Manufacturing — PERIOD!

Yes, America has been losing manufacturing job share at a furious rate. Yes, job-market5the spread between the incomes of the non-college-educated and the college-educated has widened massively. Yes, the spread between the incomes of even the college-educated and our…[upper] class has exploded – but this is not due to NAFTA. This is not due to bringing China into the WTO rather than keeping it out. This is not due to the not-yet-completed — and now never-to-be-completed — TPP.

The comments above and below are excerpts from an article by J. Bradford DeLong     (vox.com) which has been edited ([ ]) and abridged (…) to provide a fast & easy read.

…[Were one] to calculate the share that those three “bad trade agreements” played in the processes of manufacturing job loss, of widening income inequality, and the coming of the overclass of the Second Gilded Age, and — as long as you calculate honestly — you get a share of responsibility of less than 5%, and usually less than 1%.


To defend trade deals is not to say that US economic policy has been without fault

To be clear, I do think American international economic policy has been far, far from perfect.

  • I could rant with the best of them about our failure to be a capital-exporting nation financing the industrialization of the world, a role from which we would ultimately benefit both economically and politically.
  • I can rant about our reluctance to properly incentivize the creation and maintenance of the global treasures that are our communities of engineering practice… A community of engineers, technicians, and businesses that have seen the problems and methods of an industry up close and who know how to solve them is an incredibly valuable and difficult-to-create economic resource. We should not “protect” such communities regardless of cost, but we should nurture them.

I believe that:

  • a rich country like the U.S. should be saving more than it invests here at home – it is poor countries that need to invest more than they save – and the U.S. should be taking that extra savings — the part that’s in excess over investment — and lending it out in dollars to poor countries where capital is scarce. Those countries should then be taking those dollars and using them to buy the capital goods from us that they need to equip their workers. They would be buying those machines from firms embedded in our communities of engineering practice, thereby profiting US companies.
  • the U.S. should not be running a trade deficit but, rather, a trade surplus, as do the other two leading industrial powers, Japan and Germany and, to the extent that American workers share in the surplus created by healthy communities of engineering practice — which they always have, to a significant extent — this is good not just for the world economy as a whole but for US workers too.
  • in order to run a trade surplus, the U.S. should be facilitating manufacturing production and exports by following not a strong-dollar policy but an appropriate-dollar policy. A strong dollar is not in America’s interest if it means market prices are sending the wrong signals. An overly strong dollar tells engineering-based manufacturing and other industries that they are not useful to society. It signals to businesses that they should disrupt these communities and outsource more of their work. And that does serious damage.

So yes, I acknowledge US economic policy has been far from perfect. It has been far from perfect over the past 40 years in its macroeconomic stance — the Reagan and George W. Bush tax cuts, the belief that less regulation of finance in New York is always good, the belief that the value of the dollar is how we keep score – but the never-to-be-implemented TPP and NAFTA and China-WTO? They are not big parts of any picture. They are not a big part of the long-run decline in the manufacturing job share. Indeed, they barely register among the flaws in US international economic policy.

By and large, the jobs that we shed as a result of NAFTA and China-WTO were low-paying jobs that we did not really want. Because of NAFTA and China-WTO, we have been able to buy a lot of good stuff much cheaper — which means we have had more income to spend on other things and to pay people to do other, more useful things than work on low-productivity blue-collar assembly lines. Skeptical? I understand, but leave me space to make my argument, and I will return to this point later.

We have not done our proper job in cushioning the incomes of and providing opportunities to those people and communities that have found themselves behind the eight-ball, in sectors flooded by imports as other countries industrialize (especially China) but NAFTA and China-WTO look, to me, like things that have been broadly good for the American economy.

They have been even better for America as the world’s dominant superpower. A Mexico that is helped by the United States makes life here more comfortable than a deeply impoverished Mexico. China is likely to be co-equal with the U.S, as a superpower by the end of this century; enmeshing it in our economy starting now is the best move in a long-term plan to make that equality one of partnership and alliance rather than competition and cold war.

But I digress. Back to my main thread:

Why do I think that what I say is the economic policy truth is in fact the truth?

Here is the story as I see it:

Most of the decline in the manufacturing employment share was inevitable

The elephant in the room is the collapse over the past three generations of the manufacturing employment share here in America.

A manufacturing job making things in a factory is no longer, in any sense, a typical job for Americans. A sector of the economy that provided three out of 10 nonfarm jobs at the start of the 1950s and one in four nonfarm jobs at the start of the 1970s now provides fewer than one in 11 nonfarm jobs today. Proportionally, the United States has shed almost two-thirds of relative manufacturing employment since 1971.

I am, at heart, an economic historian so stepping back to place our current political-economic debate over trade policy in a two-thirds century perspective is not enough for me. I want to go back 100 times as far: back to the invention of agriculture.

From that super-long-run perspective, the past two-thirds of a century’s relative shift of jobs out of what we call manufacturing — a word that in its origins is Latin for “making things with our hands” — is just the latest of a number of shifts that have taken place.

  1. First, we lost a great many jobs in hunting and gathering, as agriculture and herding animals came in.
  2. Second, with the domestication of the horse around 2000 BC, we started the process of losing the jobs that involved dragging heavy things around: Horses could pull more and could be largely paid in grass. (A bonus: They found the grass themselves.)
  3. Third, the arrival of first practical and then theoretical understanding of what was up with nitrogen in the soil and plant growth started the process of losing jobs in agriculture: Each farmer could do more. That process has carried farmers down from three-fourths of the labor force to as small a proportion today as “gardeners, groundskeepers, and growers of ornamental plants,” according to the Bureau of Labor Statistics.
  4. Fourth, the coming of water-driven and then steam-driven spinning and weaving destroyed millions of home craftwork jobs — and sent the family of future Gilded Age robber baron steelmaster Andrew Carnegie fleeing from a Scotland ridden by death by starvation to the United States.

In each case, advancing technology enabled us to make vital things with less human time and energy; demand for those vital things by those with money to spend did not expand enough to preserve all the jobs. Now, for the past two-thirds of a century, it has been the turn of blue-collar manufacturing jobs to vanish.

To be the beneficiaries of such a process is a very good thing: Lots more good stuff becomes available at a cheaper price.

  • The $100 billion 1960-purchasing-power dollars we spent on food in 1960, for example, amounted to 20% of everything the US made.
  • The $1.5 trillion of 2016-purchasing-power dollars we spend on food today is only 8% of everything we make.
  • More than $300 billion of our annual food budget today is for food processing that is paid for today but that was done unpaid by wives, mothers, sisters, and daughters back in 1960.

To be caught up as a victim of such a process of displacement…is a bad thing. It’s not just that you need to find another job. It’s that you need to find another kind of job. You may well not be prepared or equipped for it, and it changes who you are, and that is if you can find another job.

The research suggests, however, that when the economy is doing well — a key point — and the plant you work in shuts down, you do, indeed, take a hit, but it is not necessarily a staggering hit. Your income over the next 20 years turns out to be about 10 percent lower than the income of similarly situated people who are not caught in a mass layoff but you don’t, as a rule, permanently go from a $35-an-hour manufacturing job to a $9-an-hour McDonald’s job.

In short, those whose jobs vanish usually find something else to do that does not involve too much downward mobility, whether in income or status – and the benefits of cheap goods are, usually, not overly concentrated among the already rich. All Americans benefit from inexpensive food, after all, and inexpensive TVs and other goods.

The process could always be made win-win for everybody. We can, collectively, at least in theory, have everything we had before, plus more. Figuring out how to distribute the fruits of the useful work we do in an equitable manner is a problem of societal organization that ought not to be beyond our abilities to solve. However, a lot of work must be done here by the word “could” in the previous paragraph, and by the concept of “net” benefits.

Nevertheless, in American politics in 2016, the talk is not about how to better manage a generations-long process of structural economic transformation. In American politics in 2016, the talk is, instead, truthy talk about the villainy of NAFTA in 1993, the offense of China joining the WTO in 2001, and the theoretical disaster of TPP.

Conclusion

  • Have trade agreements driven this process of shedding manufacturing jobs in America?
  • Would abrogating NAFTA, withdrawing from the WTO, and not ratifying the TPP be appropriate and sufficient policy responses to the shedding of manufacturing jobs?

The clear and obvious answer is: no.

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