OPINION & EDITORIAL
It’s the economy, Clinton!
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Also by Corey Sheahan:
- Dawkins reveals beauty of science (March 11, 2008)
- No 'alternative' to funding, just stop (February 26, 2008)
- Darwin Day: Triumph of evolution (February 12, 2008)
- Stimulus needed for legislators' minds, not economy (January 29, 2008)
- Free trade our best chance (December 3, 2007)
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- Clinton has best plan for your pocketbook (January 24, 2008)
- Obama's charisma essential to victory (January 29, 2007)
- Clinton gets even, heated with Fox (September 28, 2006)
- Greenspan bestows honest insight (September 21, 2007)
by Corey Sheahan
Tuesday, April 1, 2008
In an interview with the Wall Street Journal last week, Democratic presidential hopeful Hillary Clinton outlined the economic policies she would pursue if elected. As usual, she demonstrated an incredible level of economic illiteracy — a quality politicians exhibit with disheartening regularity.
To be fair, Ms. Clinton is trying to be elected president, not chairman of the Federal Reserve. Accordingly, she does not have the incentive to propose good economic policy but rather the economic policy that will help her win. So it’s entirely possible Ms. Clinton doesn’t actually believe in the proposals she outlined last week, but I’m feeling unusually gullible, so I’ll take her words at face value.
The major economic policies she addressed were the housing crisis, the Bush tax cuts and free trade policy, specifically NAFTA.
Ms. Clinton’s plan to fix the housing crisis does nothing more than encourage the same kind of bad decisions and foolish loans by irresponsible lenders that got us in this crisis in the first place. Her proposed government bailout of nearly $1.9 trillion in loans rewards bad behavior. What better way to encourage foolish behavior by banks, investors and home buyers than to say, “Don’t worry, if you can’t pay off expensive loans you never should have offered or accepted, we’ll do it for you.” Bailing out those who caused the crisis only serves to increase the likelihood this will happen again in the future.
On the Bush tax cuts, Ms. Clinton agrees with her rival, Barack Obama, in support of rolling back cuts for wealthy Americans. Some argue higher taxes for the wealthy will hurt economic investment and growth; Ms. Clinton rejects this, telling the Wall Street Journal, “the tax rates of the ’90s did not slow down investment and wealth creation.”
Okay, fair enough. But that doesn’t mean investment and wealth creation couldn’t have been better. However, Ms. Clinton does make a good point here: The economy during the Clinton years was arguably as strong as it has ever been. Unemployment was low and per capita incomes grew at solid rates. So you’d think Ms. Clinton would be in favor of the policies that led to the economic success of the ’90s, right?
Wrong. One of the great economic legacies of Bill Clinton’s term in office was his support of free trade — most notably his 1993 North American Free Trade Agreement with Mexico and Canada. However, Ms. Clinton has openly expressed her desire to take a “timeout” on free trade agreements; apparently, she wants to take a “timeout” on economic growth and prosperity as well. While NAFTA has not had an incredibly significant effect on the American economy, free markets and free trade are the driving forces behind our incredibly prosperous economy — the current credit crisis notwithstanding.
Ms. Clinton (among many others) argues free trade has hurt the average American worker, telling the Wall Street Journal profits are going to “elites and multinational companies in a way that isn’t spreading prosperity.” It’s possible this is the case. Has free trade really hurt American manufacturing? You be the judge.
According to the 2007 Economic Report of the President, U.S. manufacturing output reached an all-time high in 2006. Revenue and profits of the manufacturing sector reached all-time highs in 2006 as well, according to the Census Bureau. Most importantly, the average compensation (wages plus benefits) for manufacturing jobs was $66,414, another all-time high, according to the National Association of Manufacturers.
The expansion of free trade has given American manufacturers new markets in which to sell their goods. Unsurprisingly, exports by the manufacturing sector also reached an all-time high in 2006. Would the manufacturing industry be able to export in such great numbers without free trade? The answer is a politically unpopular “no.”
While it’s true some manufacturing sectors are failing (see the steel and auto industries for example), the U.S. is still the leading manufacturing country in the world. That’s right — we produce more manufactured goods than Germany, Japan and even China. As our technology continues to improve, low-tech industries like the steel industry are replaced by high-tech sectors by which America’s technological advantages can be best exploited. We’re producing better and more sophisticated goods and selling them at higher prices to our economic partners throughout the world.
While it’s unfortunate that some Americans lose their jobs to foreign competition, the long-term effects will be beneficial for our country. In the long run, workers adjust to the changing market conditions and benefit from the increased standard of living free markets bring. The jobs of the 2000s are better than the jobs of the 1980s, which were better than the jobs of the 1960s. I’m confident the jobs of the 2020s and 2040s will see similar improvement.
But only if Hillary doesn’t get her way.
Corey Sheahan (csheahan@wisc.edu) is a senior majoring in history and economics.
Anonymous (April 1, 2008 @ 7:07am):
"While NAFTA has not had an incredibly significant effect on the American economy..."
Hmmmm. Methinks there are a handful of American former manufacturing workers who will disagree with your assertion.
Anonymous (April 1, 2008 @ 11:38am):
We ain't gonna get rich shining each others shoes people.
If the USA doesn't actually produce anything it will evetually be impossible to trade dollars to other countires for materials, goods and services.
Anonymous (April 1, 2008 @ 1:24pm):
@ 11:30 am:
Good thing the U.S. economy is producing more goods than it ever has. The manufacturing sector is still strong in the U.S., and we're selling more of our goods to the rest of the world than we ever have.
-Corey Sheahan
Anonymous (April 1, 2008 @ 1:30pm):
Cory, are you a University of Chicago transfer? You hit their trade talking point perfectly. The notion of a positive job multiplier in terms of trade policies is being proven wrong at this moment. Even the white collar job enrichment that we were theorized to receive out of globalization is not materializing. And you should fear this, kiddies. Cory, your argument is theoretical and its only acdemic unfortunatelly--the reality is not matching the academic, economic theories.
Anonymous (April 1, 2008 @ 1:42pm):
"U.S. manufacturing output reached an all-time high in 2006. Revenue and profits of the manufacturing sector reached all-time highs in 2006 ... the average compensation (wages plus benefits) for manufacturing jobs was $66,414, another all-time high..."
Are any of these adjusted for inflation? I refuse to believe a manufacturing job now pays more than it did in the 1950s or 60s, comparatively.
Anonymous (April 1, 2008 @ 2:26pm):
"According to the 2007 Economic Report of the President, U.S. manufacturing output reached an all-time high in 2006."
Yea, and according to a 2003 speech of the President: Mission Accomplished!
Anonymous (April 1, 2008 @ 3:17pm):
"we're selling more of our goods to the rest of the world than we ever have"
But still not enough to generate a trade surplus?
Anonymous (April 1, 2008 @ 7:36pm):
@ 1:30pm:
Actually, in theory, free trade does not change the number of jobs available in a country, it just changes the types of jobs available. In theory, since we can buy certain goods cheaper from other countries, we can reallocate jobs to sectors where we are more efficient and reach a higher level of consumption and of social welfare.
But that's just the (basic) "theory." Fortunately, empirical evidence indicates that the standard of living (for almost all Americans) in this country is as high as it has ever been. The economy might be functioning perfectly at the moment, but taking a longer term view (over the last decade or so) Americans are as well off as ever.
If we stopped (or even just limited) free trade, we would not be nearly as well off as we are. If you really think that protectionism works, move to North Korea. They don't trade with anyone (well, just about).
@ 1:42 pm: Yes. The specific types of manufacturing jobs that existed in the 50s and 60s do not pay as well, but (fortunately) new technological advances has created new manufacturing sectors that pay better than the jobs of the 50s and 60s.
-Corey Sheahan.
Anonymous (April 2, 2008 @ 7:13pm):
@ 3:17 PM: Nope, but who cares? Having a trade deficit is pretty much meaningless. It just means that other countries think our economy is strong enough that we'll be able to pay for our excess consumption.
I'll let George Mason economist Don Boudreaux explain why the trade deficit is a good (not bad) thing:
"Nearly all the rest of the trade deficit represents positive investments in America - investments that not only signal continued investor confidence in the U.S. economy but, more importantly, investments that finance R&D, product development, worker training, new firms, factory modernization, and other activities that promote economic growth."
So, why exactly is the trade deficit a bad thing?
-Corey Sheahan
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