With the White House playing damage control over its chief economist, Gregory Mankiw, claiming that outsourcing jobs overseas is actually a long-run good for the United States, we democrats are left debating which side of the free-trade issue is the correct side for the country. Ever since Bill Clinton supported NAFTA in the early 1990s there has been a split between the old-guard labor union Democrats and the pro-growth coalition Bill Clinton created.
As the New York Times reports, we had a record trade deficit in 2003 despite a sharp drop in the value of the dollar (which should stimulate exports and slow imports reducing the trade deficit). So what is the answer to the question: Does free trade increase national wealth as its supporters say or does it cause us to lose jobs as its detractor claim? How about, both are correct.
For the last thirty years our economy has been undergoing a transformation from a manufacturing economy to a service sector (emphasis on financial services) economy. So instead of manufacturing 100,000 cars here in America, we finance the manufacture of 100,000 cars overseas. Net wealth in America increases under this scenario because finance in America is more profitable than manufacture in America. However, it takes far fewer workers to process the financing and thus the wealth is consolidated into far fewer hands. Beware when economists make the claim that we are wealthier on average or per capita income is up. A few people at the top of the income ladder can raise national averages without helping, and possibly harming, the vast majority of us. Ask the economist who raises the issue about median wealth because if they are not prepared to discuss this statistic than they are just promoting a political agenda.
As Democrats, we need to find an effective public policy that maximizes national wealth while keeping our people employed in jobs that can support a family to the standards we expect here in America. I don't have the answer on this one but I suspect it is somewhere between absolute free trade which the business community endorses as a way of consolidating wealth in their hands and a tariff-based economy which unions may prefer. In short, we need new ideas.
For a deeper understanding of this issue I recommend Kevin Phillip's book, Wealth and Democracy.
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