20 February 2008

Why I Can’t Vote for Obama, Part I: Economic Policy

The 5 voters in my “Who should James vote for” poll (or the 1 person who voted 5 times), say I should vote for Barack Obama. But the more I think about him, the more I realize I just can’t. Barack Obama wants change. So do I. But in the past week, both a white man from Iowa, and a black woman from Florida have asked me, “Change what?” And I don’t want the changes Obama does. So here’s part I, Obama on trade policy. Tomorrow, Obama on foreign policy.

Obama has been careful not to explicitly say he’s anti-free trade. Only Dennis Kucinich is foolish enough to say so openly. Obama recently said,
“Revolutions in communication and technology have made it easier for companies to send jobs wherever labor is cheapest, and that’s something that cannot be reversed… So I’m not going to stand here and say that we can stop every job from going overseas.  I don’t believe that we can — or should — stop free trade.”
But his website says
"Obama will fight for a trade policy that opens up foreign markets to support good American jobs. He will use trade agreements to spread good labor and environmental standards around the world and stand firm against agreements like the Central American Free Trade Agreement that fail to live up to those important benchmarks. .. Obama believes that NAFTA and its potential were oversold to the American people. Obama will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers."
And in a recent speech, he said,
"…trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart."  (Thank you Greg Mankiw.)
Here in Michigan, the only state to have a declining gross state product in 2006, free trade seems a hard sell. But let’s look at the figures.

Michigan’s gross state product in 2006, was $337.8 billion (in chained 2000 dollars).
  • Michigan is 5th, or 6th (click link above) out of the 50 states in total dollar value of exports. . See either the first link in the previous item, or here, or here.
  • The Democratic Leadership Council says:
    Michigan ranks ninth in the nation in the number of workers hired by foreign companies, hosting 1,000 companies from more than 20 countries which support more than 205,000 jobs -- about one in every 15 of Michigan's private-sector jobs, and an especially high proportion of manufacturing jobs.
  • Michigan’s top two export targets are Canada and Mexico (scroll down to table two in the link), the two countries who are our partners in NAFTA. My state exports over $38 billion (in 2006 dollars) to Canada, and nearly $5 billion to Mexico. Third on the list is Germany, at a measly $1 billion. So what do you think screwing with NAFTA would do to Michigan’s economy? 
If you dig into the first table in the prior link, you’ll find some fascinating data. Look at item 14: Michigan exported $376 million in rear-view mirrors for vehicles! And nearly $1 billion in gearboxes! Let’s limit our trade with Canada and Mexico, because the U.S. market is going to soak up an extra billion dollars worth of gearboxes?

Because if we don’t import, which we do buy sending other countries money, they won’t have any money to send us, so we won’t be able to export.

But, you might argue, our manufacturing sector has declined. It's true that (a) manufacturing employment has declined, and (b) that the proportion of the GDP coming from manufacturing has declined. But manufacturing has continued to grow, with greater output than before (with fewer workers, because of productivity increases). In 2001, manufacturing was about $4.1 trillion dollars, and after dipping because of recession from '01 through '03, grew to $4.9 trillion in 2006.

If we look specifically at auto industry employment, which is of greatest concern to Michigan, overall employment has fallen, but due almost wholly to the poor performance of GM and Ford. If we look at the foreign-based manufacturers, their US employment has increased by over 50% since 1995. And it is possible to make money as an automaker in the US, and even through foreign sales.
"Toyota, on track to overtake General Motors as the world's biggest automaker this year, said Friday its April-June profit jumped 32.3% to a record high for a quarter, lifted by strong overseas sales and a weaker yen. (USA Today)
Obama needs to read two books, at least, on economics. And here’s the two I’d recommend, for him or anyone. Bastiat’s Economic Sophisms (AKA Fallacies of Protection), which can also be read online, and Russels Robert’s The Choice: A Parable of Free Trade and ProtectionConvince me Barack Obama supports free trade, and I’ll be one step closer to supporting him.


James K said...

While you essential point about trade is correct, you make an error that is essentially universal among non-economists.

While access to foreign export markets is good, the primary benefit of free trade is access to cheap foreign imports. The purpose of production is consumption after all, and cheaper consumption amounts to a pay rise.

I'll admit as someone who leans Obama that his domestic policy is troubling. On the other hand, he has Austen Goolsbe as an economic advisor (an impeccable Chicagoan by all accounts), on the other other hand Bush as Mankiw as an advisor so maybe that doesn't count for much.

I think Obama with a Republican congress would be quite good, but with Dems backing him up, I am apprehensive.

James Hanley said...

"...you make an error that is essentially universal among non-economists."

Oh, ouch. I actually cut out a paragraph that explicitly stated that the primary purpose of free trade is to increase our standard of living by decreasing the cost of goods. But I thought the post was already long enough, and that it might make it confusing by taking it in too many directions.

Specifically, I had written: "Even if my income does not go up, if the price of goods falls I am materially better off." And that's what I use as the basic theme of the first several weeks of my political economy class, when the students look at Smith, Ricardo and Bastiat.

But in this case I decided to focus on something most people in my state are unaware of, which is how big a part of the Michigan economy exports are.

But I'll have to check out Austen Goolsbe, whom I'm not familiar with. It's a long time until November, and there's plenty of time for me to change my mind.

James K said...

Well I'm glad you're aware of it. Trade was one of my specialities at university, and given that the public's attitude to trade is so boneheaded it tends to be one of my hot button issues.

Glad you're spreading the word among your students though.

James Hanley said...

Actually it's one of my hot-button issues, too.

I usually respond to people who complain about trade stealing jobs by saying they're trying to steal my money by making me pay for more things--and that they're using government to take my money.

I also point out that it means I could spend less money elsewhere, so they're really just asking government to force me to help save their jobs, at the expense of someone else's job. That really ties people up in knots--they just can't get it.

By the way, I looked up Austen Gooslbee, and I do feel a bit better about Obama. There's often a difference between campaign rhetoric and governance decisions.

James K said...

Yes, the Lump of Work fallacy is distressingly common. Its hard for me to understand that people can't see that the 19th and 20th centuries saw a massive destruction of jobs in the agricultural industry with no ill effects. But people don't get taught this stuff.

James Hanley said...

"Its hard for me to understand that people can't see that the 19th and 20th centuries saw a massive destruction of jobs in the agricultural industry with no ill effects."

Well, you are a long way from the U.S. We're still in love with the myth of the family farm here. We still see efficient (capital-intensive) agriculture as a threat. "You just don't realize how many families have lost their livelihood because they can't compete with the corporate mega-farms!" Etc., etc.