I’ve
continued to think about the argument in the previous post that free trade is
really the fundamental issue driving the Trump campaign. As I said in that post,
up until now I have bought the argument of the academic economists and political
elites that free trade is a good thing. Now I am not so sure.
Free
trade, which means the free movement, without tariffs, of goods and labor
between nations, does a number of good things.
It expands the markets for corporations.
It increases competition, which tends to drive manufacturers towards
more efficiency. It moves manufacturing jobs to lower-wage nations, which (a) reduces
the manufacturing costs of those goods and (b) improves the lot of those
foreign workers, who otherwise might have to take lower-wage jobs. Indeed,
outsourcing work to lower-wage nations has been one of our most effective modes
of foreign aid, lifting millions in other nations from poverty and providing
the training that enabled them to climb to steadily better-paying work.
All
this is obvious, and is the basis for the “conventional wisdom” among academic
economists and politicians that free trade agreements are good.
The
problem, though, is that free trade has moved a lot of US manufacturing jobs to
other nations, leaving many areas in the US, including particularly the “Rust
Belt”, in serious trouble, with very high unemployment rates. Now in theory
(according to economic models) all those people who lost their manufacturing
jobs ought to be retraining themselves for “higher value-add” work, like programming
computers. The problem is that those
neat economic models, dreamed up by academics who probably never even met a
blue-collar worker, are based on a simplified, fanciful view of the world. An out-of-work 50
year old machinist with a family and a mortgage is probably not in a position
to go “retrain” himself as a programmer, nor to move himself and his family to wherever programming jobs are available. Nor, in fact, may he be intellectually
capable at his age of learning an entirely new skill like that. And even if he did learn to program, he would probably have trouble competing with younger programmers who could typically be hired at a lower wage.
So
yes, free trade may make goods less expensive and more affordable at the local
WalMart. But if a family doesn’t have
any income, it hardly matters that the washing machine costs less – it is still
unaffordable.
Outsourcing,
made possible from free trade agreements, isn’t the only structural problem
here. Automation is having much the same
effect. Manufacturers are finding that
robots are a lot cheaper than human workers in the long run – they work 7x24,
don’t get sick, don’t need benefits or retirement plans, don’t strike for
higher wages, and don’t need lunch hours or bathroom breaks. Of course, now white collar jobs are also
beginning to be replaced by automation. Who needs an expensive lawyer if
software can write a perfectly good legal will for you? Who needs an expensive accountant
if Quickbooks software will do the job at 1% of the cost?
So
the underlying question that the isolated, out-of-touch, wealthy political
elites in neither political party have even begun to address, and probably don’t
even yet recognize, is that the American economy depends on people having
incomes, one way or another. Free trade and automation may be good in theory
for producers of goods, but if people have no income, they can’t be customers
for those goods.
Henry
Ford was smart enough to pay his workers a much higher than average wage, just
so that they could afford to buy his cars.
Something like that may be necessary in the American economy. Tariffs may not be the answer – they tend to isolate
producers from foreign competition and therefore let them stay inefficient. But something has to be restructured so that
we retain jobs – and incomes – here in America, or our economy will go south pretty
quickly. Indeed, that may be in large
part why the economy has recovered so slowly and so incompletely over the past
eight years.
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