An unfortunate consequence of learning Bastiat's "Broken Window Fallacy" is the accompanying frustration of seeing this age old economic fallacy reappear ad nauseam. One of the latest, and indeed most vocal rock throwers, is the United States manufacturing sector.
Those with even a cursory knowledge of current affairs should be able to recite the recent plight of the manufacturers:
- Since January of 2001, 2.7 million "well paying manufacturing jobs" have been lost.
- Free trade with global competitors is putting American manufacturers at a competitive disadvantage.
- If manufacturing continues to be exported to "third-world countries," America will place itself in grave danger.
Individuals and camps in both the conservative and liberal wing of the political spectrum have agreed on the need to plug the leak of economic sovereignty. And while the causes of manufacturing's slow, cacophonous death are many, there is only one cure: intervention by the federal government.
This past December a coalition of manufacturers, including the National Tooling & Machining Association and the American Manufacturing Trade Action Coalition, called for a halt on trade agreements, asking congress to end further trade liberalization. In an issued statement the coalition incredulously warned, "We are extremely alarmed at the rapid disintegration of our manufacturing base resulting in part from past trade liberalization agreements and legislation."
Trade, and it seems in particular the trade deficit, is "hollowing out" this vital industry. To some, we are trading ourselves into an economic third-world. As one pro-manufacturing lobbying group wrote, "The arithmetic of trade is quite simple. More U.S. exports increase American jobs. More foreign imports destroy American jobs."
As with health care, the crux of the argument for protecting the manufacturing sector is that it is somehow different from all others.
Pat Buchanan and the staff at Crafted With Pride in the USA, Inc. contend that the flight of manufacturing jobs represents a security threat to America's sovereignty. Without manufacturing, how can we produce the tools and supplies we need to defend ourselves? Certainly, we can't buy heavy machinery from China to built rockets when we are at war with them.
Such bellicose fears are as unwarranted as they are dangerous. Certainly one could argue that there are many sectors and goods that are even more vital than the manufacturing of arms and textiles. The surest and easiest way to inflict mass casualties on the American people would be through the food or drinking supply. And what's more, there is nothing more important than food and water for human survival.
The greatest force for the limitation of miliary aggression is trade, both in goods and ideas: it is the ultimate pacifier. The trading of diapers and jeans is equally as important as the trading of computers and heavy machinery, for when we are busy making money and buying DVD players, we have no stomach for war. It is only if we follow the advice of Mr. Buchanan and close our borders from the outside world that our peace and prosperity would vanish in a cloud of barbarism.
Another bogeyman for manufacturing is productivity, an odd notion unless you look at production as being its own end. As reported by the Washington Post, "From 1979 to 2000, U.S. factory output nearly doubled while the number of manufacturing jobs fell by 2.3 million." By and large, this reduction in labor force was driven by gains in productivity. By cutting labor costs, American manufacturers have been able to compete with the dominant players in the global marketplace, such as China and India.
In addition, workers who remain in the industry, however many or few, enjoy the increased wages that accompany greater output. For example, according to the Bureau of Labor statistics, manufacturing productivity rose by over 9 percent in the third quarter of last year. During that same time period, the hourly compensation for workers rose by over 4 percent. As F.A. "Baldy" Harper wrote, "wages parallel productivity." There is no 1:1 relationship in the movement of wages and productivity, but in general as productivity increases so too do wages.
What the manufacturing lobby fails to realize is that the excess jobs will be shed from the industry, regardless of the wants and desires of the workers. The forces of economics, much like the wind and water, cannot be ignored. Productivity will continue to increase so long as companies want to compete in the open marketplace. As long as the quantity demanded for any product is limited, and as such, the production of that particular product increases only insofar as demand does, the increased productivity to workers obviates the need for the same number of employees, thus the shedding of labor. If the excess laborers are not fired, global competition will insure that those with swollen payrolls with pay the price on the market.
Lastly, many blame the trade deficit for the bleeding of manufacturing jobs. Yet most American's lives are filled with trade imbalances. As I have just moved to Irvington-On-Hudson, I have trade deficits with every store I have visited. Today I bought a slice of pizza with currency. I imported food, exporting nothing, yet I feel none the poorer for it. In addition, the United States is largely a free trade zone within its borders. My family back in Vermont has an extremely large trade deficit with the surrounding town of Shelburne. To date, the citizens of Shelburne have purchased nothing from me or my ilk.
That being said, there are certainly some "unfair" forces at work against the manufacturing industry, and the federal government claims responsibility for most of them. The regulatory burden placed upon manufacturers leaves them at a severe disadvantage with the rest of the global playing field. Countries that don't have the list of draconian environmental and workplace regulations, not to mention mandated benefits and compulsory unionization, reap the benefits of flexibility. Abating these onerous dictates would go a long way toward improving American manufacturers' chances in the world economy.
Trade, like all human endeavors, is not utopian. The "great churn" (in the description of the Dallas Fed) propels an economy forward, yet not without downsides. When advocates for free markets laud the "moral superiority of capitalism" it is not without an understanding of the pitfalls that bedevil human action. Ethical behavior for the individual, Hazlitt wrote, can only occur when the long run outcomes are accounted for. Workers who seek to use the manacles of politics to infringe upon the freedoms of others, for their own short-term economic gain, have no claim upon righteousness, no matter what President Bush or others may say.
