‘Stimulus’ Kills Pennsylvania Steel Jobs

Redstate notes how the "buy American" provision of the so-called stimulus bill is already putting some Pennsylvania's out of of work.  See the original Canadian Press article here.

Stateside, the sting is also being felt. As many as 600 steelworkers in Pennsylvania, whose union lobbied for the Buy America law, are slated to lose their jobs at Duferco Farrell after the company lost orders from its biggest customer because some of its goods are partly produced abroad.

Buchanan: GOP should embrace xenophobia, not economics

Pat Buchanan on Townhall.com calls for an automakers bailout based on xenophobia and on repeating the mistakes of the past, rather than sound economic policy.

Is the Republican Party so fanatic in its ideology that, rather than sin against a commandment of Milton Friedman, it is willing to see America written forever out of this fantastic market, let millions of jobs vanish and write off the industrial Midwest? …


And, unlike Mitsubishi, General Motors didn't bomb Pearl Harbor.

This has promoted some interesting dialogue within our office. 

From Joe Sterns:

The use of “xenophobia” here is akin to the misapplication of the word “homophobia” by homosexuals in their debate with those who oppose same-sex marriage, et al. One can support tariffs or bailouts without being a xenophobe. That being said, I am against the bailout; however Buchanan raises two interesting realities about the GOP’s view of the current role of government in the economy and the fairness of trade:

1) How does the GOP go from approving a $700 billion bailout for bankers to drawing a line in the sand over a $14 billion bailout for the automakers? Can you say “erratic”?

2) Yes, the “foreign” plants operate more efficiently, but no one seems to mention they are getting their fair share of taxpayer subsidies to be here. In fact I didn’t know that, and it angers me. If we shut down the bailout for the Big Three then we ought to cease the subsidies to foreign competitors, too.

One more thought on “free trade.” Adam Smith offered free trade as ONE leg in a stool that presupposed many other legs being in place, i.e. equalized labor and wage laws and regulatory environment. To take all the legs out from under the stool but one and assume that one leg (free trade) will hold up the stool is foolhardy.

My response: 

All of these are weak points – Buchanan is attempting to justify a bad policy by using other bad policies as a historical reference.

1) Some argued that the financial sector was different. We disagreed, but regardless, there has to be a line drawn in the sand somewhere. The financial bailout was a bad policy, but even those who think it was good agree than endless bailouts are a bad policy. Two wrongs don’t make a right.

2) “Domestic” manufacturers also get subsidies/incentives from state and local governments when building plants and such – as we have shown these are poor economic policy. So stop doing it. Don’t give GM/UAW more money.

You are not entirely correct about equalized wages and regulations. Free Trade is good for our economy regardless of the wage laws in Mexico and China. And as Don Boudreaux points out,  that logic would imply Pennsylvania would be better off with high tariffs on products from other states -  right-to-work states, states with lower taxes, and states with lower minimum wage laws, which is of course preposterous.

Yes, our wage laws, tax climate, and regulations hurt our economic competitiveness (both PA and the US), so change them. This does not justify protectionism, which make us all poorer.

How Do You Define "American-Made"?

Mark Perry poses the question about how you define "American-made" cars.  Does it depend on where the car was assembled?  Where the corporate headquarters is?  What percentage of the parts are made in the US? 

Indeed, even my Dad, a mechanic who despises "cotton-picking foreign junk" (though he has equally disparaging remarks about Ford and Chrysler, and pretty much anything made after 1970), has come to realize that the lines are blurred.  Many Toyota and Honda cars are as much "American made"today, in terms of where the assembly happens and parts come from, as are GM and Ford.

Of course, the same principles come into play when we are talking about leasing the Pennsylvania Turnpike to a "foreign company".  What is the defintion of "foreign" - where the investors live, where the employees work, or where the corporate headquarters is? 

Abertis - the lead partner in Pennsylvania Transportation Partners - is headquartered in Spain (though Citi Group, with a 40% stake is NY based).  Would those who oppose "foreign ownership" change their views if Abertis moved its offices to New York or Philadelphia? 

Abertis is a publicly traded company, with investors from all over the world.  The $12.8 billion upfront payment for the Turnpike lease will be partly financed by US lenders.

And the new subsidiary, Pennsylvania Transportation Partners, will be operating solely in Pennsylvania - hiring Pennsylvania workers (including all current Turnpike employees under collective bargaining), contracting with PA construction firms, and paying Pennsylvania taxes. 

Mexicans and Machines

The latest Drew Carey video on Reason TV tackles NAFTA, robots stealing jobs, and the benefits of creative descrution. I don't know whether I laughed harder at the machines taking over the world (with clips from Terminator and othe movies), or the "yes we can" robot that will replace politicians.

Obama: NAFTA not so bad after all

Barack Obama tells Fortune magazine that NAFTA hasn't been as bad as he said it was.

It may have been that he was pandering during the campaign, or it may have been that he is reading our blog and website and learning a thing or two.

Economic Benefits of NAFTA

National Center for Policy Analysis has a new analysis on the economic benefits of NAFTA. NAFTA critics most frequently point to the "lost jobs" but here are some facts:

• U.S. employment rose from 110.8 million in 1993 to 137.6 million in 2007, an increase of 24 percent.
• The U.S. unemployment rate averaged 5.1 percent for the first 13 years after NAFTA, compared to 7.1 percent during the 13 years prior to the agreement.

As I've pointed out before, any "lost jobs" tend to be those leaving states like Pennsylvania, Ohio, and Michigan, to low tax, right-to-work states.

Hoover's Heirs

Wall Street Journal editorial on what not to do facing a possible recession, i.e. follow the lead of Herbert Hoover:

In 1930, he signed the Smoot-Hawley Tariff Act, setting off a wave of protectionist retaliation that undid the globalization of the preceding decades and did far more harm to the world economy than the stock-market crash ever did. Two years later, amid a bad recession, he undid the Calvin Coolidge-Andrew Mellon tax cuts, raising the top marginal income-tax rate to 63% from 25%. The recession became a Depression.

I have to admit I wasn't aware of either Hoover's tax increases or tariffs, either, but I will pass the blame onto my high school, college, and graduate schools. Here is what Wikipedia says on Smoot-Hawley:

Economists have now generally regarded this Tariff Act (i.e., tax increase on imported goods) as the greatest policy blunder in American economic history ...

{sarcasm}What? A greater blunder than NAFTA? {end sarcasm}

Trade and National Defense

Don Boudreaux has an interesting discussion over at Cafe Hayek about the controversy over foreign companies contracting with the US Department of Defense (i.e. Airbus).

His dismisses most of the concerns raised, but opens the door for the complaint that,

if "we" go to war, "our" military might no longer have access to some materials and outputs necessary for fighting a war.

He does not mention how that might be a positive, as it discourages going to war with countries we trade with. This is the "Golden Arches Theory of Conflict Prevention" which posits that no two countries with a McDonald's have gone to war with each other. Or, in simpler terms, free trade prevents war.

Defending Free Trade

The Economist has an editorial defending NAFTA - and the need for the US (and presidential candidates) to drop NAFTA bashing. (HT: The Foundry).

On a related front, Mark Perry has a chart showing industrial output in the US growing 450% from 1960-2007, but the number of manufacturing jobs staying the same.

Of course Pennsylvania (along with Ohio and Michigan) continues to lose manufacturing jobs -not to China and Mexico, but mostly to other states.

Update: Greg Mankiw in the New York Times on the political rhetoric around free trade vs. the economic reality.

NAFTA, Foreign Trade, and jobs

Cato's Dan Griswold writes that "Ohio Needs More Foreign Trade" as Hillary Clinton and Barack Obama denounce NAFTA in Ohio:

Ohio workers would pay a heavy price for pulling out of Nafta. Canada and Mexico are the top two markets for exports from Ohio, accounting for more than half of the state's exports in 2006. According to the Ohio Department of Development, 283,500 workers in the state earn their living in the export sector, with machinery, car parts, aircraft engines and optical/medical equipment among the leading exports. A trade showdown would put those good-paying jobs at risk.

Since Nafta took effect on Jan. 1, 1994, the U.S. economy has added a net 26 million new jobs. The average real hourly compensation (wages and benefits) of workers has climbed 23%. Real median household net worth has increased by a third. Of course, Nafta was not the primary driver of all that good news. But it is a useful counterpoint to the sense that large numbers of Americans have been "devastated" by Nafta and other trade agreements.

Mark Perry has some great charts on manufacturing jobs and productivity pre and post NAFTA over at CARPE DIEM.

Of course, anti-NAFTA rhetoric is just political bluster that shouldn't be take seriously, as Obama and Clinton told their Canadian contacts.