The U.S. has lost manufacturing jobs, and it is not due to increases in productivity in manufacturing or because there is a natural maturation into a services economy. The main reason is the freeing up of labor forces in Asia, particularly China, due to their political reforms. Reforms in China, or movement toward greater free markets, began in 1978. Agricultural productivity went up. Peasant (farm) labor pools then started to move to the cities and manufacturing jobs. Imports into America began to increase. However, they were subject to tariffs that were uncertain. Congress renewed the tariffs annually, and they could be raised or lowered. In 2000, that uncertainty ended, and China entered the WTO. Manufacturing companies could then move production to China in greater volume without worrying that their investments might be harmed by sudden tariff increases by the U.S. The labor market in China became more integrated with the labor market in America through the flow of capital and manufacturing to China. Hence, manufacturing in the U.S. felt this shock and so did the labor forces employed in that manufacturing.
The basic story is that half the world had a labor force that was basically being thwarted by communist and similar repressive governments, and when the dam was burst and free market forces unleashed, giant equilibrating economic forces came into play.
One result has been lower prices for products imported made overseas and imported into America. Another result is that American workers have had to compete with Chinese workers. This has put pressure on pay. American workers have had to retrain and seek employment in other occupations. It has been a very difficult and trying period for large numbers of American workers who once had well-paid manufacturing jobs. A third result is that some localities, cities and regions that had built up government spending that depended on the manufacturing tax base had to adjust to reduced tax bases. A fourth result is that some companies that moved manufacturing overseas have lowered their costs and shown higher profits.
The time when this equilibration is complete is unpredictable. It depends on Chinese and American policies, agricultural productivity in China, the movement of peasants, etc. High profits attract more capital and more demand for labor, raising wages in China. This tends to slow the exit of capital and jobs from America. The creation of new industries and jobs in America is another unpredictable factor. As costs rise in China, the incentive to locate in America goes up.
Naturally, there is some demand in America for the government to do something about this. Government can’t do anything fundamental to help by shifting money around or printing money. The FED’s policy of stimulating housing by buying mortgages won’t help Americans to remain competitive and develop new industries and productivity enhancements that produce better-paying jobs. It won’t help workers who have to migrate and retrain. Raising the minimum wage won’t help. Government make-work won’t help. Government subsidies for favored industries won’t help. Redistributing wealth won’t help. Extending unemployment benefits again and again won’t help. Standard government nostrums cannot deal effectively with the strong economic forces that are at work in the world economy. The most effective incentives are those to be found in free markets. The government can most effectively deal with these forces by removing the impediments in various industries that it has introduced over the last 50 years and counting. It can call a moratorium on new measures of the same ilk. It should not be doing anything to strangle the internet or internet businesses (like sales taxes) or imposing burdens on these businesses, because they are a locus of new jobs that can compete in the world economy.
The U.S. government could help American workers tremendously by ending its extremely costly interventions overseas and reducing its military establishment. Employment in defense industries would decline, but if the reduction in government spending were matched by tax cuts, then the economy would be given a big leg up to adjust to productive lines of work. The U.S. is over-investing in phantom security.
The U.S. government could help American workers tremendously by scrapping Obamacare and freeing up the medical sector of the economy, thereby making it more competitive and producing lower costs and higher quality.
The U.S. government could help American workers tremendously by making Social Security optional for them.
These measures are regarded as too radical and too out of the mainstream of the two major parties.
A true growth agenda for America and Americans need not even take these measures just mentioned, however. Any political candidate can assemble a list of measures that free up the American entrepreneurs and economy by focusing on individual industries and sectors and locating those costly regulations and measures that are impeding them. Such a list will not resemble at all the existing programs produced annually by Congress, which are aimed at votes, interest groups and not at improving the American economy. A political candidate who really intends to do something for Americans and their economy has to be willing to go over the heads of Congress and its entrenched interests, to go directly to the broad American public and rally them behind a new program and a new agenda for American growth.
9:46 am on January 30, 2014
