ECONOMICS: The Blame Game
Wesbury, Brian S.
ECONOMICS BRIAN S. WESBURY The Blame Game n ECESSIONS ARE ROUGH. Profits fall, bankruptcies soar, jobs are lost, and hope, the mother's milk of capitalism, dries up. During periods of structural...
...After whining about a too strong dollar for so long, the National Association of Manufacturers has finally published research that shows the real problem with U.S...
...Newthings are invented, newjobs are created, and consumers increase the breadth of their demand...
...As long as capital and labor markets are not encumbered with burdensome regulation, the savings from trade and off-shoring will be recycled into more productive activities...
...Without productivity growth, America would have the same living standards today as our forefathers did 225 year ago...
...For supplysiders who believe that homegrown policy mistakes cause recessions, this blame-game is frustrating and dangerous...
...More than ever before in history, a dynamic, global economy for capital and labor has emerged...
...NAM President Jerry Jasinowski said that these costs "are twice the size of the average direct labor costs of US...
...These same forces are at work when the U.S...
...economy...
...More jobs and higher inflation-adjusted incomes suggest that the U.S...
...None of the Democratic presidential candidates seem to understand this and following their prescriptions would be a disaster...
...The dynamic economy of the twenty-first century is just the time for ideas like reemployment accounts, which help people swept up by waves of creative destruction adjust to a new reality...
...is below 6 percent...
...Nonetheless, the Bush administration has supported misguided tariffs and quotas on a wide variety of goods...
...In this new world, flexibility is essential...
...The capital gains and dividend tax cuts reduced the cost of moving assets from old to new technologies...
...and labor unions are focusing the spotlight of blame on China in particular, and the practice of "off-shoring" service sector jobs in general...
...Entrepreneurs are the lifeblood of prosperity, but they can only be successful in an environment that rewards risk-taking...
...Moreover, it obscures a positive direction for policies that would allow the US...
...The off-shoring of jobs is the economic equivalent of employing machinery to boost productivity...
...The Luddites may have been right about their own situation,but if their policyprescriptions had spread to the whole economy, progress would have stopped...
...But the record does not support this theory...
...But before doing so, it is necessary to detail the benefits of globalization...
...No Internet, no cell phones, no DVDs, no planes, trains, or automobiles...
...The Alternative Minimum Tax must be fixed before it swallows more millions of taxpayers, and corporate tax rates are still too high...
...Importing cheap goods and off-shoring service-sector jobs reduces costs for consumers and boosts profits for corporations...
...production costs...
...The Bush team has made some progress on this front...
...A dynamic economy can withstand any storm...
...For every manufacturing worker that has lost a $23 an hour job and now has one at $16 an hour, there is more than one that has experienced the opposite...
...Real disposable personal income, which includes small business profits, dividends, and interest earnings, is up 54 percent in the past 21 years...
...imports goods from China or off-shores jobs to India...
...Policies that create a more flexible economy must be followed...
...Between 1982 and today, despite the supposed job-killing competition of Japan, Mexico, and China, the US...
...But history has not been kind to those who forecast on the dismal side of economics...
...However, following recessions, and especially during election years, the hunt for scapegoats gets serious...
...And, despite renewed economic growth, pundits that span the ideological spectrum from Paul Craig Roberts and Pat Buchanan to Sen...
...When the economy is growing and jobs are being created, globalization (and the short-term pain it can bring) is not front-page news...
...It is dangerous because the blame-game takes the focus off of U.S...
...The real pain that people feel when machines, imports or foreigners cause a permanent loss of U.S...
...The reemployment accounts, proposed by the Bush Team in January 2003, are a fabulous idea...
...Less costly imports, or greater profits, free up resources that are recycled into other sectors of the economy...
...By definition, every time an economic entity increases productivity, less labor input is necessary and the marginal cost of production falls...
...During periods of structural economic change, as we are living through today, these events can become even more demoralizing...
...Japan has experienced more than ten years of stagnation and deflation, while Mexico collapsed in 1995 and is now losing jobs to Asia...
...Today's neo-Luddites will fall into the same trap—despite their repeated warning that "it is different this 34 THE AMERICAN SPECTATOR FEBRUARY 2004 BRIAN S. WESBURY time...
...Only in a zero-sum, static world does this become a bad thing...
...Regulatory and litigation costs should be reduced, and with state budgets on the mend, workers compensation costs could be cut...
...Individuals, families, and sometimes entire communities are devastated by the creative destruction of a dynamic economy...
...job market...
...has benefited from increased trade, outsourcing, and productivity-enhancing technology...
...The urge to blame somebody for this pain is intense...
...In the early 1980s, it was Japanese imports that would "hollow out" our manufacturing base and steal our jobs...
...jobs should not be ignored...
...manufacturers...
...Today it is China and off-shoring...
...policies that hurt job growth...
...In the early1800s, followers of Ned Ludd, known as Luddites, destroyed knitting machines in the textile industry because it was thought that those machines robbed people of jobs...
...In the early 1990s, it was the "giant sucking sound" of NAFTA, and Mexico, that many thought would decimate the US...
...to benefit fully from globalization—a sampling of which I provide below...
...Supply creates its own demand," and it always will...
...Moreover, average inflation-adjusted compensation (wages, salaries, and benefits) has climbed 34 percent in the same time period...
...Just last month, I met a 50-year old woman who paid her way through college as a telephone switchboard operator (a dying breed) and is now an attorney for a telephone company...
...But the US...
...Entrepreneurs are the lifeblood of prosperity FEBRUARY 2004 THE AMERICAN SPECTATOR 35...
...It is frustrating because globalization is unambiguously good for the U.S...
...As long as those resources are used for a higher-valueadded purpose, the U.S...
...This mistake locks resources into industries that have lower than average returns...
...Left to its own devices, the market would not allocate resources this way...
...In France, where the static ideal of a 1960s-style, social-welfare state still exists, the unemployment rate is 9.6 percent...
...can still do more...
...We need more freedom, not less...
...It reduces costs, increases profits, and lowers consumer prices...
...The zero-sum idea, which Adam Smith railed against in 1776, regards the world as a fixed pie of resources...
...This was technically true...
...In addition, lower marginal tax rates increase after-tax rewards for small business—an increasingly important outlet for the creation of new jobs...
...has created 42 million new jobs...
...Neo-Luddites believe that any job that moves toward a lower wage rate, or anyproduction that can be done for less overseas, puts inexorable downward pressure on jobs, wages, and prices in the US...
...However, as long as freedom exists productivity growth and cost savings lead to an increase in wealth...
...is left wealthier...
...A much better set of policies would enhance the flexibility of the economy, not increase its rigidities...
...It is not different this time...
...Paying a weekly stipend to those who have lost jobs, as the current unemployment system does, encourages static behavior...
...Charles Schumer (D -NY...
...Brian S. Wesbury is chief economist, Griffin, Kubik, Stephens & Thompson, Inc., a Chicago-based investment bank...
...It is also essential that Washington understand that the burdens of taxation, regulation, and litigation undermine the ability of U.S...
...Reemployment accounts, by giving the unemployedworker a lump sum, would allow individuals the freedom to move or go back to school...
...But now let me suggest what more can be done...
...This is the reality of our world...
...The Bush tax cuts must not be allowed to unwind in 2010 and should be extended now...
...Despite the burdens outlined by NAM, the unemployment rate in the U.S...
...The dismal ones always say that...
...The blame game misses the point...
...companies to compete...
...This research shows that extra costs for "corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy" total 22 percent of the price of production...
...While some regions of the countrymay experience a deterioration of economic well-being in the short-run, the entire economy benefits immediately and in the long-run...
Vol. 37 • February 2004 • No. 1
