Economic isolationism is bad for everyone

Posted: Feb 23, 2004 12:00 AM

In the race for the White House this year, the debate on the domestic front is shaping up as a debate about jobs, job creation and outsourcing of jobs. President Bush is being portrayed by Democratic candidates John Kerry and John Edwards as being in the pocket of business, destroying jobs and - even worse - exporting American jobs abroad. Edwards, for example, rants about entrepreneurs and business owners who, he says, "only care about profits, they have lobbyists everywhere, and they own this White House." John Kerry has taken to calling Americans who invest overseas "Benedict Arnolds."

It makes me think the Democratic Party candidates for president love labor and hate capital, praise the worker but attack the employer.

Edwards goes further in attempting to drive a wedge between employees and employers in his "Two Americas" stump speech. He tugs on the voters' heartstrings with his story of the little girl whose father lost his job because the factory closed. "This is a moral issue," he says. "America should never enter into a trade agreement that allows an American corporation to pick up, leave America, go to another country and hire children to make their product. It's wrong." Talk about attacking a "straw man."

Of course, stripped of the smooth, trial-lawyer rhetoric, what Edwards is advocating is nothing less than economic autarky, a mindless economic isolationism and misguided self-sufficiency that ignores everything we have learned since Adam Smith first wrote about gains from trade, comparative advantage and division of labor. Rather than building walls to keep American businesses from going overseas, it makes more sense to eliminate the policies that drive them to do so. The enemies of American workers are not Mexico, China or India; the real enemies are the stupid tax and regulatory policies in Washington, D.C., that make it tough to do business in America.

As economist Bruce Bartlett points out, the Democratic candidates criticize the president for taking unilateral action in foreign policy to do what he feels is required to defend America, but they turn right around and demand that he take unilateral protectionist action without regard to how it affects our trading partners and our global economy.

Bush believes the combination of lower tax rates on capital and labor, i.e., on work and saving, coupled with reasonable regulations and more open and liberal trade policies, will both spur strong economic growth and create more new jobs. It should be clear to most people that you can't create employees without first creating employers and that you can't reward labor with good wages absent policies that encourage capital formation and investment.

A priori, the only real and lasting way to increase the standard of living among working people is to continuously increase the amount of capital invested per capita. The greater amount of capital invested per worker, the greater the output and productivity from which rising real wages can be paid. Truck drivers' wages are higher when they have trucks to drive than when they don't. There can only be more truck drivers when there are more trucks, i.e., capital investment in the tools of production.

Dividing workers from employers for electoral gain is nothing but thinly disguised class warfare. The Democratic Party generally is considered to be for the worker and his family. John Kerry plays on this notion in campaign stops at plants and union halls with a banner prominently displayed behind him that reads "Fighting for Workers."

Equally, the Republican Party is thought to be the party of business and the investor. It's a tragedy that all too many Republicans cannot defend the entrepreneurial, capitalistic system as the only economic system compatible with freedom and democracy and effective in generating upward mobility and fighting the very poverty that grinds down the hopes of far too many people.

I recall one debate I had before the National Urban League with Rep. Dick Gephardt, D-Mo., where Gephardt said, "I'm for the working man while Jack Kemp is for the investor." My response was that the division between capital and labor is an artificial one created by politicians who want to divide the electorate for partisan gain. The worker and the investor are not two separate people; they are the same people but at different stages of their lives.

While politicians may not comprehend this fact, hard-working Americans do. That's why they reject class warfare at the polls and consistently support broad-based tax-rate reductions on all levels of income to open up our system to where the truck driver can become a trucking business owner. That is what Abraham Lincoln called the true American system.