The Administration’s top economists now claim that the outsourcing of America’s service jobs is good for the U.S. economy. They say that consumers benefit when low paid foreign workers, operating overseas, provide America its software, engineering, architectural, data management, finance, and radiological services.
In the 2004 Economic Report of the President, the Council of Economic Advisors, composed largely of academics on leave from their tenured university positions, also maintains that consumers benefit when lower-priced foreign made imports replace domestically manufactured goods. The Council also projects the U.S. economy will create an additional 2.6 million new jobs this year.
The Council is wildly wrong in its trade positions, even in its numbers. Specifically, the Council’s economists predicted that the United States economy would gain 3 million jobs in 2002. But we lost 400,000. They predicted the U.S. would create an additional 1.7 million jobs in 2003. We lost 147,000.
America’s job problem, we think, is found not with the competitiveness of U.S. business or American workers but with U.S. trade policies that actually encourage the export of U.S. jobs and production.
The linkage between jobs and trade is clear. Lower paid foreign workers, operating out of foreign factories, are now doing the work once done by Americans. That work is reflected in the excess of U.S. imports over U.S. exports. This massive trade deficit is the root of America’s job losses.
The numbers tell the story. The U.S. Department of Commerce has long reported that each $1 billion of traded goods represents 10,000 or more jobs. Is it surprising, therefore, that the U.S. lost almost 3 million manufacturing jobs over the past three and a half years as its goods trade deficit rose to more than $480 billion annually?
The loss of manufacturing jobs, moreover, rips through the economy like a tidal wave, wiping out a vast core of America’s middle class. The numbers, moreover, are clear. The Commerce Department’s Bureau of Economic Analysis reports that each dollar created by manufacturing multiples itself 2.2 times as it flows through the economy.
Among the beneficiaries are workers and companies in finance, insurance, and real estate services. Construction, transportation, communications, and utilities also benefit, as does mining and agriculture.
But multipliers also work in reverse. Goods made in foreign factories by penny-wage workers generate little U.S-based construction, create no demands for worker housing, need few utilities and communications, and most often carry their own finance and insurance. Thus, when imports are allowed to replace domestically produced goods, not only to America’s manufacturing workers lose, so too do those working in business-related services and those who provide personal services such as barbers, restaurants, lawyers and accountants.
The Council on Economic Advisors is correct in that low-cost foreign imports save consumers a little money. But those savings are coming at the cost of the larger economy – the loss of the U.S. manufacturing sector and all else that it supports.
If ever a nation had an economy policy that is penny wise and dollar foolish, U.S. trade policy today is it.
And America’s top economists don’t get it. They have an educated incapacity, reinforced by antiquated theories created in the 18th century that are about as relevant today as buggy whips. As long as these distant elites set U.S. policy, that’s a problem for all the rest of us.
Perhaps eliminating lifetime tenure for free-trade academic economists would help them understand the real economy. Coping with bills while being unemployed is truly an educational experience.