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Thursday, October 19, 2006
Rich Lowry :: Townhall.com Columnist
Against Brownomics
by Rich Lowry
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If only the U.S. economy would have a steep recession. Then, perhaps, Rep. Sherrod Brown's fondest economic dream would come true -- the U.S. trade deficit would decline.

Brown is the Democrat who has a big lead in his race to defeat incumbent Republican Sen. Mike DeWine in that traditional breadbasket of Republicanism, Ohio. Brown hopes to overturn the post-World War II free-trade consensus that has been upheld in both the Clinton and Bush administrations. One of his motives is the high U.S. trade deficit: "Our shortsighted trade policies are producing record deficits, and it is time to change course," he says.

The U.S. trade deficit was running at $69.9 billion in August, a record. This should, generally, be a matter of indifference. It means that our economy is healthy and viewed as an attractive place to invest. A trade deficit and capital-account surplus result from the inflow of foreign capital that enables the U.S. to consume and invest more than it could otherwise. Would Brown prefer the alternative?

When the U.S. was rising to become the world's greatest industrial power in the 19th century, it ran a trade deficit for roughly seven decades. During the Great Depression, we ran a surplus. Obviously, a trade surplus in and of itself isn't necessarily desirable. Japan ran a trade surplus when its economy was growing, and ran a trade surplus when its economy was headed toward a decade-long period of stagnation.

Brown wants to reverse the deficit by tightening trade rules. But this would not work. Trade barriers erected by the U.S. would almost certainly trigger foreign retaliation, while undermining U.S. competitiveness. So exports and imports both would fall, still leaving a deficit. Now, U.S. exports are thriving. They were valued at $122.4 billion in August, another record.

Brown complains that we are exporting jobs. One wonders: What jobs could they be? The unemployment rate is 4.6 percent, close to full employment. Yes, there are call centers for U.S. companies in places like India, but are those jobs so desirable that we need to fight to keep them here? Oddly, Brown supports an amnesty for illegal immigrants, a policy whose supporters often argue that illegal immigrants fill jobs Americans won't do. So the Brown position effectively is that we need to keep low-skill jobs -- so Mexicans can do them.

Brown also argues that free trade depresses U.S. wages. But the much-hyped lag in wage growth probably has more to do with the business cycle. As the job market tightened, inflation-adjusted earnings have risen 2.2 percent from a year earlier. The stagnation in wages has been exaggerated, in any case. When benefits are taken into account, total inflation-adjusted compensation has risen 10 percent since 2000.

Finally, Brown blames the decline in U.S. manufacturing on free trade. This decline, however, represents a long-term trend, comparable to the decline in agricultural employment throughout the 20th century. As long as the economy is vibrant, workers in a sagging sector find employment in another. This is painful for those workers, but a reactionary parochialism shouldn't be permitted to put their interests above those of the economy as a whole, which benefits from free trade.

There are tangible benefits that Brown's opponent, Mike DeWine, notes. In Ohio, 30 percent of the state's agricultural products get exported and a quarter of its manufacturing jobs depend on exports. More broadly, free trade lowers prices for consumers, alleviating the alleged "middle-class squeeze." It increases efficiency through the fires of competition. It's no accident that one of world's most open economies is also one of the fastest-growing.

Unfortunately, Brown represents a trend. As Jonathan Martin, political writer for National Journal's The Hotline points out, many Democratic senatorial candidates share Brown's views on trade, so the traditionally free-trade Senate will soon be more protectionist. That's bad news for the economy, but maybe, just maybe, through dampening America's growth, Democrats will reduce the hated trade deficit.

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About The Author
Rich Lowry is author of Legacy: Paying the Price for the Clinton Years .
 
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FeedFwd: Bingo
Something I have said a lot, a point I have made to friends and acquaintances over and over: somewhere in the neighborhood of 150 years ago, there were a whole bunch of p*ssed-off blacksmiths and metalsmiths, who got put out of work by that whole Industrial Revolution thing. Where once skilled tradesmen had been at the core of Western life, crafting pretty much EVERYTHING made out of metal, now machinists and steel mills took over that duty. And the fact that they were able to do it far better, and far more CHEAPLY, putting what had once been prohibitively expensive within the reach of a far wider ranger of consumers, it remained true that an entire way of life was wiped out. Blacksmiths, silversmiths, pewtersmiths, a whole range of craftsmen who had to work hard at apprenticeships to learn the trade, suddenly had to find other work. Maybe they became farmers, maybe they went to the cities and took lower-paying jobs as factory workers, maybe they became unemployed alcoholics. It doesn't matter.

Does anyone other than Amish, Mennonites, or neo-Luddites really want to argue that the Industrial Revolution ought to have been rolled back to protect the jobs of all those out-of-work metalsmiths?

No? Then explain to me how protecting the jobs of out-of-work - well... *anybody* who loses or has lost their job to economic streamlining - is worth the loss of growth, efficiency, and improved quality of life that comes with moving forward instead of back.

You can't go back...
...and you shouldn't want to. The heyday of American manufacturing is popular with reminiscers. The world was the factory worker's oyster. But we didn't have many of the things we have today like Ipods, PCs, video technology, etc. We didn't have as much choice in cars or fashion or anything else. And in real terms, it cost more for most things that were available.

Things change. Progress happens. Technology marches on. Thankfully, God endowed us twith the ability to adapt to a changing world. We can continue making cars like they still drive in Cuba, but when somebody else makes cars with more features, who will want to buy the old-fashioned cars? Would you prefer to buy an old XT or pre-Mac Apple II or would you prefer the latest and greatest?

One of the most poorly understood economic concepts is the notion of comaprative advantage. When somebody in government decides what factories or industries should be protected, we get the results, which usually means fewer choices, less innovation, and higher prices. So even if higher prices are cancelled by higher wages (which is not a given), consumers have lost purchasing opportunities. But if something can be done with comparative advantage by somebody else, it doesn't mean we can't do the same thing. It means we can improve everybody's lot in life by doing things where we have a comparative advantage. One of the things that has always been an advantage to Americans is that we lust for new and better stuff. This acts as a motivator for us to be more productive and innovate on that front and also motivates us to figure out what would appeal to consumers and innovate on that front. It is no accident that Americans have been some of the greatest inventors and innovators in history.

Liberals generally seem to argue for going backwards and using government as a tool to ensure that we do. And as we have seen, government is an excellent tool for stifling innovation and promoting the status quo.
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