August 27, 2010
-- by Dave Johnson
When we pack up a factory here -- and all of its jobs and supply chain and its support/.maintenance structure -- and send it all over there to a country that doesn't have the wage and safety and environmental protections we have, just to save a bit of money today we are also sending them the ability to make money in the future. And that future is here now.
The country's second-quarter GDP was revised down sharply to 1.6%. So the "stimulus," by raising GDP somewhere between 1.7% and 4.5%, is the only thing that has kept us from falling completely over the cliff. But we can't just get by on stimulus forever (especially when we waste one-third of it on tax cuts that leave nothing behind but debt). We have to fix the causes of the problems.
One big reason we are having so much trouble is that we haven't solved the trade problem and our efforts to get growth going are just being used to help other countries grow.
In The Washington Post today, Flow of imports drags down economic growth:
The government said the trade deficit subtracted almost 3.4 percentage points from second-quarter GDP - the largest hit from trade in 63 years.
Corporate conservatives talked us into sending our manufacturing out of the country. In the short term some executives got huge bonuses as assets and capacity were sold off and payrolls reduced. But in the long term the ability for the country to earn money has been sent "over there."
I recently came across this talk by Ian Fletcher, author of Free Trade Doesn't Work, given at the Heritage Foundation. I recommend watching, and clicking through to order his book. Ian doesn't come from the left or right (watch him make this clear in the video) but instead just looks at trade with a scientific, fact-based, analytical approach.
Here is the most important point he makes, 20 minutes in (use that slider bar), in regards to the problem of moving factories to cheap labor countries. Comparative statics: Free-trade economists argue that cheap labor is a "comparative advantage." Fletcher explains that this means that if they are already making something more efficiently, today, then our best move today is to buy it from them. But it doesn't make sense to just pack up an industry and reassemble it in a different country with low wages because then you are doing nothing more then sending away your ability to earn a living.
Yes, as I said, some people make a bunch of money in the short term doing that. But "it's obviously going to cause a decline in our capacity to produce goods and services in the future."
Posted by Dave Johnson at August 27, 2010 1:49 PM
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