Prescriptions for Recovery and Disaster

There is a myth constantly going around about the sorry state of manufacturing in this country. Since I work for an American manufacturer, whose products sell worldwide, this has been of some interest to me. I recently engaged in a dialogue with a fellow over at Big Government who believes, from what I can gather, that a return to protectionist trade policies and tariffs is America's only hope. Please, don't take my word for it, his arguments in full are here.

I will post portions of the exchange, leaving out, perhaps a little more of the "colorful" language, and opting for brevity over a verbatim transcript, since I have not gathered anyone's permission but my own for the quotes. Forgive me if the following lacks the structure of a formal essay. I believe the material speaks for itself, without a large scale edit and re-writing and makes some valid points in the aftermath of the US's recent credit downgrade.

I merely mentioned the fact that Obama's hand picked adviser for job growth is busy exporting jobs as we speak. Obama also talks about "closing loopholes" where big companies avoid paying taxes, while Jeffrey Immelt is essentially making GE X-ray a Chinese subsidiary of GE, and whoops! not subject to US taxes. That enough hypocrisy for you?

We cannot "demand" that other countries raise their standards. Ever hear of the concept of "sovereign nations"? If you want to take a stand against other countries using cheaper labor and/or less than ideal working conditions, please feel free to boycott all products not made in the US. Hope you're not awfully fond of television. We haven't made any sets in the US since before the age of digital TV.

Your fantasies about tariffs are duly noted.

This was followed by the point that what had made the US "the greatest economic power in the world", was "fair trade policies".

My rejoinder:

"Do you believe it is fair to trade with a country that artificially pegs its currency?" Are you suggesting an embargo? Adopt the Cuban model? That would be one way to stop the US from "trying to compete" with these countries.

Tariffs start trade wars. The best one can hope for with tariffs, is for certain favored industries to benefit. Prices to consumers will go up (great time to raise prices, during a recession, right?) and the countries who are the targets of the tariffs will undoubtedly respond with tariffs of their own, making our goods less profitable to sell abroad.

Unless we can find some poor country who has nothing we want to buy. Then we can make their goods less profitable and our country can grow richer at their expense? Is that your idea of "fair"?

There are things that can be done to improve the business climate here in our favor. Eliminate unnecessary regulations, which raise the costs of doing business, (please note my use of the word "unnecessary" and spare me additional straw men.) lower the tax rates and make them permanent. Too many businesses are paralyzed into inactivity because of the uncertainty of tax laws, health care requirements and regulations.

Fair trade is when I trade what I have for what you have and both parties are satisfied. If business is to grow and unemployment is to recede, the government has got to get out of the way. Primarily in reducing the tax burden that feeds a bloated government filled with endless redundant departments, all of which combine to put the brakes on our economy.

Personally, I try not to buy goods made in China, for a number of reasons. I wouldn't have given them most favored nation status. But slapping any tariffs on them to protect any domestic industry is doomed to failure. It would only hurt the consumer and raise unemployment among low skilled workers and teenagers.

What made the US the greatest economic power in the world, was freedom. To the extent that government takes freedom away, it cripples economic recovery.

After a bit of back and forth, in typical liberal fashion, (whether he is one or not), he seems to take delight in dealing with what I haven't said, rather than what I did. A sort of Mind Read Fail. He advocated the return to the policies of Alexander Hamilton, and an 11 point plan... from the eighteenth century. (1791 for the math impaired)

My reply:

"Only through manufacturing, when $5 worth of iron ore is converted into a $2000 car door, or $1 worth of raw wool is converted into a $1000 Calvin Klein suit, is real wealth created" Sorry! I reject your premise. And if you thought about it for a minute, so would you. What makes a " $1 worth of raw wool... into a $1000 Calvin Klein suit"? The obvious answer is "Calvin Klein". That's what makes it different from a $100 Steve Garvey suit or from a $2 ball of yarn your granny uses to knit you a scarf.

Intellectual property creates "real wealth". You can manufacture $.25 CD-ROMs and Blu-rays all day long, but if you want to sell it for $10 or $25 or $200, you'd better put some music or a movie or some software on it that I want to buy. **

And there is "real wealth" in our resources as well. You scoff about $5 worth of iron ore, but no one mines just five dollars worth. There is real wealth created when it is mined and again when it is smelted and again when it is manufactured into something useful. And, if you do it right, once again when it is recycled.

And despite many myths and old wives tales, there is still a lot of manufacturing going on in this country. There are just not as many manufacturing jobs. By automating processes in their plants (and moving to right to work states), many manufacturers have been able to remain competitive with foreign labor. New Balance shoes, for example. http://www.newbalance.com/usa/

Energy creates wealth. Without energy, the $5 ore never gets mined or smelted or the wool stitched into an Armani suit. Without energy, the worker cannot get to the factory which cannot keep its doors open without it. Real wealth can be found in drilling and refining our own oil. Reducing energy costs would make every industry in the country more profitable, from the food on your table, to the shoes on your feet to the car that you drive.

This administration has chosen to hobble the energy industry at every turn, choosing instead to subsidize mythical* green energy and penalize every other existing source of energy. There is real wealth in the ground and more to be had in refining, manufacturing gasoline, if you will, if this administration and all the green weenies on the left would just get out of the way.

Reduce the pointless and counterproductive regulatory morass, lower corporate taxes, which are merely a hidden tax on the consumer, allow our nation's energy companies to drill and mine the resources we have and you will see a big turnaround in this country.

*In the sense of providing enough power to drive our current economy, much less the future.

** With high speed downloading, even the "manufactured" CD-ROM is virtually obsolete. (See: high button shoes/buggy whips)

FYI: "Since 1975, (US) manufacturing output has more than doubled"

In looking to document one of my points to "hockeynation" I ran across this (and the chart above):

Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975 – a sure sign of economic progress.

The true cause of dwindling American competitiveness is a tax code that puts domestic firms at a clear disadvantage – not a lack of skill or innovation on the part of the American worker.

- Veronique de Rugy

Cross posted at LCR, Say Anything.