Monday, January 24, 2011

Zero-sum economies

The dirty not-so-little secret of the Republican party is that for all of its Reaganesque rhetoric about optimism, confidence, and faith in the future, it has always been the party of crabbed protectionism and dour retrenchment; when it gets right down to it it has always sought to nervously preserve the vested economic interests of the moment rather than believing in the prosperity-creating promise of growth and innovation for the future.
For years it was the party of the tariff to protect American manufacturers; now it is the party that seems to believe that only by restricting immigration, cutting wages, and liquidating everything from health-care benefits to entire state governments (yes, the Party of Fiscal Responsibility is trying to get a bandwagon going to allow states to declare bankruptcy in order to shed such trivialities as pensions for retired police and firefighters) can America remain "competitive."

Implicit in all of this is the crabbed view that the economy is a fixed lump to be scrabbled over in a Darwinian fight for survival: thus government spending siphons money away from private investment; thus immigrants take jobs away from those already here; thus trade with countries like China and Mexico cannibalizes American business.

The prescription we are now hearing more about from the intellectuals of the GOP is that we need to address America's "uncompetitive labor market" (as Professor Newt Gingrich recently opined) — a fancy way of saying to cut wages.

The problem with all of this is that economies are not a zero-sum game. That is something Americans above all used to know:

• We welcomed immigrants precisely because more people generate more demand for goods and services; rather than stealing jobs they create more jobs as well as more ideas and more innovation and more energy and more get up-and-go that makes the entire economy expand.

• We (finally) learned to welcome free trade precisely because everyone gets richer when they exchange goods, as my friend Matt Ridley has brilliantly points out in his book The Rational Optimist: the poorest countries in the world are those which have no means of buying from the rest of the world — and, not coincidentally, also have nothing to sell the rest of the world. (And as Paul Krugman points out today, the idea that we can solve our economic problems by boosting exports and cutting imports runs into the rather obvious problem that "we can’t all export more while importing less, unless we can find another planet to sell to.")

• We welcomed government investment in canals, railroads, highways, ports, communications, electrification, education, and scientific research because rather than stealing a piece of the pie they made the pie bigger for all. And as the New Deal (I thought finally) showed, in times of economic downturn, we welcomed government spending to create demand — and jobs — that the paralyzed private sector was temporarily unable or unwilling to.

• And we welcomed high wages for workers because again, rather than sourly viewing this as a "cost,"  far-sighted industrialists recognized that a well-off middle class created broad demand for goods and services that kept the whole economy growing. (When Henry Ford doubled the wages of factory workers in 1914, he told reporters, “The commonest laborer who sweeps the floor shall receive his $5 per day. We believe in making 20,000 men prosperous and contented rather than follow the plan of making a few slave drivers in our establishment millionaires.” When was the last time we heard that happening, or even heard someone talking that way?)

It's worth remembering that even in the face of all the global "competition" we hear about, America still produces more — generates more wealth — per worker than nearly every other country in the world, even in manufacturing: output per American manufacturing worker (according an analysis by the Conference Board), is about 5 times that of China. We didn't achieve such extraordinary high levels of productivity in the first place by stiffing workers, barring the doors, letting our infrastructure crumble, cutting scientific research, or  declaring bankruptcy.

That mantra "job-killing" we're hearing from the GOP is the logic of retrenchment, austerity, liquidation, pessimism, protectionism, and zero-sum economics. It would be enough to wipe the smile off even Ronald Reagan's face.