Tag: economic growth

The Human Toll of Globalization

The Portly Politico32 Comments

Last week’s posts shared a similar theme:  the costs of unbridled free trade; the benefits of cutting corporate and income taxes to unleash economic growth; and the human side to economics that academics tend to miss.

The first and third topics referenced above came into sharp relief as I read an excellent piece by Chadwick Moore, “Left for Dead in Danville: How Globalism is Killing Working Class America.”  It’s a long-form piece of journalism for Breitbart, but it is well worth the read.  I encourage all of my readers to set aside twenty minutes to read it and its terrifying account of globalization gone wrong.

My post today simply seeks to offer up a summary of Moore’s findings, presenting them in an easily-digestible form for those who don’t have the time or inclination to read his full-length piece.

The conceit of the piece is simple:  Moore visited Danville, Virginia, a former textile mill town located on the Dan River, and very close to North Carolina.  The town was once—and “once” doesn’t mean “a hundred years ago,” but about twenty years ago—a thriving town that supported a solid middle-class through its robust textile industry.  Civic pride was abundant, and the Dan River Mill supported a number of youth and community activities and functions that are familiar to anyone who has grown up in a small town.

Then came NAFTA in 1994, followed by China’s entrance into the World Trade Organization in 2000.  After years of struggling to compete with foreign competition, Dan River Mills shut down in 2006 (it had been open since 1882).

As the town’s economy declined and unemployment skyrocketed, social problems grew.  Drug use increased dramatically, as did crime, and formerly-safe, middle-class neighborhoods devolved into dangerous slums.  More than a quarter of the town’s population is on food stamps.

Race relations also grew worse.  The town had enjoyed peaceful, working relationships between black and white citizens, who worked together happily in the mills and other businesses.  Now, the KKK plans rallies, preying off the desperation of the unemployed (the town is roughly half white, half black).

Moore gives a good bit of space to quoting Michael Stumo, the CEO of the Coalition for a Prosperous America.  Stumo elegantly explains the problem in Danville—as with many other small towns in Middle America—tracing it to China and the World Trade Organization.  Some choice bits to chew on:

“‘When China joined the WTO in 2000 with 1.3 billion people underemployed, it began pulling them out of the rice paddies, the farms, and rural areas, and putting them to work. The Chinese under-consume. They produce more than they consume, [in] a country that’s four and a half times as big as ours and relying on the American consumer to fund their path to wealth and doing so with a state-directed economy, which is different than communist, it’s a strategic mix of state capitalism with a little bit of private sector in it. We always thought communism would fail, but China found central planning 2.0 and is pretty good at it,’ he says….

‘We have free trade within the 50 states,’ Stumo says. ‘By impoverishing our middle class with this offshoring driven by free trade policy, you’re killing the U.S. consumer market, which drives growth, because they have no money. Five or ten percent cheaper prices is overwhelmed in this stage by lack of production and stagnant wages,’ he says. ‘The U.S. middle class cannot afford to fund the rise of other countries anymore.

‘Industry doesn’t stand still; industry is always incubating—you give up the jobs, the wealth creation, the supply chain clusters in communities, and that affects the service sector around them,’ Stumo says. ‘You pull those plants out, and a lot of people are out of work, and then the whole general wage level drops because burger-flipping isn’t an upward pressure on wages, but production is.'”

A degree of globalization, in an age of mass transit and mass communications, inevitable.  And open trade with lower tariffs generally is beneficial.  But naïvely-open trade with dishonest trading partners with slave-level wages primarily benefits the dishonest party.  Yes, there are some winners in the United States—I certainly enjoy a higher quality of life because of cheap electronics from abroad, for example—but as I wrote last week, isn’t it worth paying a little more for your television or washing machine, if it means an American keeps his job.

My thinking on this is simple:  the actual, physical and mental of work, in and of itself, important.  Yes, we could pay everyone a guaranteed basic income, or help people through more assistance programs (ignore the astronomical costs of those programs for the moment), but even if they worked beautifully in the material sense, they will, in the long-run, lead to a deterioration of real skills and, more important, a spiritual vitality.

I strongly believe that the three keys to happiness are faith, family, and work, in that order.  Work is ennobling, even if it is unpleasant at times.  As such, if the government is going to do something, would it not be wiser to offer assistance that requires work?

Tariffs accomplish this goal to some extent, and are entirely constitutional (indeed, one of the authors of the Federalist Papers, Alexander Hamilton, argued for them as Secretary of Treasury).  They also produce revenue for the federal government, and could be used to offset further reductions in corporate and income tax rates.

Ultimately, the social and civic costs of unbridled, unfocused free trade seem too steep.  Read Moore’s observations about the flood of drugs and despair into this once-civic-minded, prosperous town, and understand that the 10% discount you enjoy on your consumer goods is seldom worth the human toll.

To clarify once again, I’m not arguing we return to the massively high tariffs of the late-nineteenth and early twentieth centuries.  That would be economically disastrous in other ways, and would further enhance our federal government’s penchant for corporatist back-scratching and favoritism.  But some judicious, targeted tariffs, especially against nations like China, are wise.  Why should we be subsidizing China’s growth at the expense of our own?

One final thought:  as I wrote Friday, a married man used to be able to raise his kids on a gas station pump-boy’s salary.  Sure, life was lean, and there weren’t a ton of crazy gadgets to play with or luxuries to enjoy, but the kids grew up well enough and the wife could stay home to raise them.  Are we really that much better off now, when both husband and wife slave for 40+ hours a week (and usually longer), outsource their parenting responsibilities to daycare and public schools, and can’t get out from under student loan, home, car, and consumer debt?

There are a host of factors driving the modern scenario of today versus the “blue-collar father” of yesteryear, but surely one economic solution is to stop burrowing out our families and towns in favor of frosty, urban cosmopolitanism and aloof globalism.  I care about the people of China, and I’m glad to see they’re no longer trapped in rice paddies and collectivized farms, but—like our great President Trump—I care about my country and fellow countrymen first.  So should the United States government—it’s job is, literally, to put Americans first.

Surf’s Up

The Portly Politico6 Comments

Demographer and statistician Steve Sailer has a book review (“Surfer Privilege” at Taki’s Magazine) of war correspondent William Finnegan’s Barbarian Days: A Surfing Life.  It’s about Finnegan’s idyllic youth in Southern California and Hawaii at a time when a working-class Irish family could afford real estate in some of the United States’ most desirable zip codes, while also supporting four children (Finnegan’s father worked in television, but was a pump jockey at a gas station upon first moving to Los Angeles; he could purchase a house and support his wife and child on that salary).

I recommend reading the book review linked above, as it contains classic Sailerean demographic analysis.  The real estate opportunities accessible to working- and middle-class Americans in the 1950s and 1960s are truly astonishing, and Sailer argues that, if you were born in 1946, the world was your oyster (Sailer was born in 1952, which he argues was also a pretty good year to enter into this world).

The real estate analysis rings true.  I’m 33 and earn a modest income as a history and music teacher at a small private school in rural South Carolina, which I supplement with adjunct teaching at a local technical college and with private music lessons (as well as the occasional music gig).  I’m also an extreme budgeter and put a significant chunk of my earnings into retirement accounts (IRAs and a 403(b) through my employer), and I drive a twelve-year old Dodge minivan.  While I live like a king compared to most people in human history, I still rent a little cottage and don’t support any dependents, much less a wife.  I’ll probably work hard for most of my life (though my long-term retirement planning should pay off over the course of decades; I’m definitely “getting rich slowly”), and I’m not counting on Social Security being around when I hit 70.

Had I been born when my parents were, I’d probably have a house, a wife, four kids, a pension, and a convertible, earning six figures in “consulting.”

I’m not complaining.  I highly value hard work, and I don’t think demography is always destiny (just look at all the miserable, divorced Boomers who are trying to figure out what went wrong).  I believe God has a purpose for us, and we live in our respective time for a reason (not that I haven’t, at times, experienced a sense of dislocation from our current era).

But Sailer’s demographic analysis of the period under consideration—a time that was so safe and prosperous, a kid could spend thousands of hours surfing and his parents didn’t much worry about him—is compelling, and points to long-term problems endemic in our culture today, such as mass immigration, an overly-rosy view of diversity, and idealistic subjectivism.

The Boomer generation was blessed to ride a long wave of economic prosperity and expansion.  As a product of the Great Recession, I’m growing more optimistic that future generations will enjoy similar gains.  I’m also cautiously hopeful that economic growth can prevent the unfortunate Millennial tendency toward idealizing socialism.

Hopefully, we’ll all be able to say “surf’s up!” again soon.

TBT: Economics: A Human Science

The Portly Politico10 Comments

The unofficial, unintentional theme of this week’s posts have been about economics in general (other than Tuesday’s SCOTUS piece)—the power of tax cuts, the potential upsides to tariffs, etc.  In that spirit, I thought for week’s post about diving back into a piece that reflects my gradually evolving thinking about economics.

The summer before my sophomore year of college, I read the second edition of Milton Friedman’s Capitalism and Freedom, a work that completely revolutionized how I thought about the world and economics.  Free-market principles became my lodestar, and colored my ideology for a decade.  Indeed, I still adhere to these principles when it comes to economic questions.

However, as I grew older and (hopefully) more experienced, I began to realize that neoliberal economic theory, while elegant, is not always hard-and-fast, and that there are many more wrinkles to economic issues than appear at first glance.  I don’t believe in overcomplicating things—again, cutting taxes tends to stimulate economic growth—but most issues contain a frisson of nuance that is easy to miss.

I’d long held to the idea that free trade is a largely unalloyed good, and that the short-term costs of lost jobs or reduced wages in some industries domestically would be made up for by increased efficiency of production and the rise of new, better industries.  Sure, there’d be some friction in the duration, but people will manage, and we can always throw some funds for reeducation their way.

While I think such disruption is inevitable, I don’t think we should embrace it so blindly that we forget about the people who find themselves out of work, or in a position that they can’t modify their skillsets to find a new job.  I live in the rural South, and there are hundreds of little towns that dried up once the mill the left, the railroad shut down, or the big family farms sold off.  Part of that story is the onward march of Time and economic progress—and the drama of human history.  But part of it is the story of globalist elites selling out Middle America.

This situation is not one merely of tariffs, taxes, and the like, but also of a radical ideology that would see national borders dissolved and massive immigration—even illegal immigration—encouraged.  I am libertarian on many issues, but the pitfall of modern economic libertarianism—and there are many—is that it only conceives of issues in terms of economic efficiency (and, if you get right down to it, it’s inverted Marxism, to the extent that, for Marxists, everything is about economics—or, more properly, materialism).  And, yes, generally greater efficiency means greater quality of life, but economics is not always the clean, elegant science that its proponents claim it to be.

To that end, I argue that economics, properly considered, should be considered part of the humanities, as it deals in a direct, visceral way with the people’s lives.

I don’t know the precise balancing act, or what should be achieved.  I highly recommend reading Patrick J. Buchanan’s The Death of the West for a more complete treatment of how to revive wages for workers while maintaining a high degree of quality and efficiency.  I don’t agree with all of Buchanan’s proposals, which are heavily influenced by Catholic social teachings, but there is an appeal to the idea that, if the government is going to interfere in the economy (and it is, and does), then it should be in favor of workers and families, not at their expense.

Finally, I wrote this essay in the context of the Brexit vote—which I intend to write an eBook on soon—and the arguments I was hearing about the economic catastrophe Brexit would be (that hasn’t been the case yet).  I argued, essentially, that the liberty and national sovereignty are more important than sweet European Union bennies and transfer-of-wealth payments.  The EU is a despicable organization as it currently operates, and as a lover of liberty, I’m thrilled to see nationalist-populist movements rising in major European countries.  I don’t agree with all of these groups or their policies (many of which are socialistic in nature), but the impulse towards greater national sovereignty is, in general, a healthy one in our age of excessive globalization and unelected supranational tyrants.

With that lengthy introduction, I give you 24 June 2016’s “Economics: A Human Science“:

If you’ve read my blog the past couple of weeks, you know that I am strongly in favor of Brexit, or Great Britain voting to “Leave” the European Union.  I’ve laid out my reasons here and here.  As I write this post, results are trickling in on that historic vote, and I am intermittently checking them with great interest–and not a small bit of trepidation.  Right now (about 10:30 PM EST/-5 GMT), “Leave” has a slight edge, but the outcome is too close to call.

Already, though, the British pound and the euro have taken a beating in value, as gold prices soar (this blog is conservative in viewpoint, so I probably should start urging you to buy gold, guns, and freeze-dried food reserves; source:  http://www.bloomberg.com/news/articles/2016-06-23/pound-surge-builds-as-polls-show-u-k-to-remain-in-eu-yen-slips).  One of the major bogeymen of the “Remain” side in the referendum was the threat of economic downturn.  As I conceded in both of my previous posts on Brexit, there will no doubt be major economic disruption should Britain vote to “Leave.”  However, a (likely temporary) drop in the value of the pound sterling is a price well paid for restored national sovereignty.

God Save the Queen… and Great Britain from the clutches of Eurozone bureaucrats

As conservatives, we’re accustomed to viewing economics–or, at least, economic growth–as a positive good.  After all, we believe in the power of free markets to satisfy human needs and desires, and to innovate new ideas and products that alleviate human suffering, drudgery, and toil.  Conservative politicians tend to focus on job growth and prudent deregulation–often coupled with tax and spending cuts–as perennial, bread-and-butter issues that directly affect voters’ pocketbooks for the better.

 “…these [fiscal] policies are not about making gobs of cash… but about what those gobs can do to improve lives.”

But economics, like much else, is not a means unto itself.  The reason conservatives like economic growth–besides, well, making money–is that it demonstrably improves people’s lives.  Deregulation, similarly, can work beneficially (if you doubt me, just ask anyone who has ever dealt with the Affordable Care Act and the Department of Health and Human Services).  In essence, these policies are not about making gobs of cash–although that is certainly nice–but about what those gobs can do to improve lives.

Thus, we have a stark contrast between the organic, healthy, occasionally unpredictable economic growth of a free market and the regimented, inequitable, limited economic growth of progressive corporatism.  Our current economic environment, I fear, is far closer to the latter than the former.  Complex, heavy regulations benefit larger firms and discourage the formation of smaller, newer firms by raising the upfront costs of entry.  Perverse incentives raise the costs of healthcare for young, fit Americans, while making it unrealistically cheaper for older, sicker, chubbier patients.  Overly-generous social safety benefits (some of which, like the food stamp program SNAP, the government actively advertises and encourages people to use) discourage able-bodied Americans from pursuing work.

I could go on (and on… and on).  In short, conservatives are used to being correct on principle and on economic outcomes.  Typically, conservative fiscal policies align with, rather than try to manipulate, economic realities, so the outcomes of those policies tend to be both principled and positive.

“As fiscal conservatives… let us never lose sight of the human side of economics.”

In the case of Brexit, however, the quest for restored sovereignty–a stand on an important first principle–will result in some negative economic outcomes.  A major argument of the “Remain” side is that staying in the European Union will preserve Britain’s economic stability and ensure it a place in a European common market.

Such an argument is seductive, but it leads to a gilded cage.  Nobel Prize-winning economist Milton Friedman famously said that economic freedom is a necessary precursor to, though not a guarantor of, political freedom.  With Brexit, the axiom is almost reversed–by reclaiming its political freedom, Britain will then be able to pursue renewed economic freedom.

As fiscal conservatives–or those that support free markets, freer trade, and light regulations–let us never lose sight of the human side of economics.  We too often treat economics as a science.  Instead, it should find a home alongside the humanities.

Our chief aim should be to unleash human potential.  So liberated, its creativity and ingenuity can lift human life to greater heights.

We already have a model:  we’ve been doing it in the United States for over 200 years.

Q&A Wednesday – Tax Cuts, Trade Wars, Etc.

The Portly Politico13 Comments

Two of my most loyal readers, Megan and Frederick (I highly recommend the latter’s corporate history blog, CorporateHistory.International), both chimed in via Facebook about Monday’s post on tax cuts.  Frederick pointed out a potential downside to corporate tax cuts—what’s to stop large multinationals from investing that money in physical plants and employees overseas, notably in China?  Megan asked me to elaborate further on tariffs in relation to that very question.

Being a conservative, I like to conserve things—traditions, morals, civil society, working institutions, etc.—but most especially effort.  I’m a strong believer in the dictum, “Work smarter, not harder” (although you need a healthy dose of the latter, too).  As such, I’m adapting my Facebook response to them here.

I think the question of tariffs and trade wars is hugely interesting, and needn’t be bogged down in tedious charts and numbers.  What I do believe is that President Trump has ripped the façade from the bipartisan push for globalism, and particularly demonstrated the real, human cost of unbridled free trade.

I used to be 99% a free trader, with 1% reserved for mild tariffs on national security-related goods, like steel.

Now I’m probably more 85% free trade, 15% tariffs. A tariff is a tax, yes, and it’s borne not just by foreign nations exporting goods to the US, but also by American consumers, who have to pay more for goods that are protected (and, thus, more expensive and potentially of a lesser quality than they would be in a competitive, free market).  That disclaimer aside, it seems like paying a few more bucks for your washing machine is a good way to keep Americans employed and earning a decent wage.

If you take that reasoning too far you fall into the dilemma of minimum wage increases, which increase unemployment (especially for unskilled, young, and minority workers) and raise costs, so that any increased wages enjoyed by the beneficiaries are eaten away by the increased costs of consumer goods—all served up with a side of higher unemployment.

That said, judicious tariffs—I’m not arguing for the high, blanket tariffs of the late nineteenth century, which wouldn’t work well in our modern, interconnected economy—especially related to key industries like steel, could keep a lot of Americans working, and would allow blue-collar workers to earn a wage that wouldn’t require years of expensive schooling.

Also, I think targeted tariffs against unequal trading partners—I’m thinking primarily of China—would level the playing field, and prevent some of the outsourcing and capital flight that might occur with a corporate tax cut (or, more likely, increase). It’s unreasonable to expect American workers—with all their labor protections, etc.—to compete with near-slave wage Chinese workers. China’s currency manipulation to make its exports artificially cheaper, as well its rampant intellectual property theft, needs to be combated, and if it means getting our cheap plastic Happy Meal toys from Vietnam (or the USA!) instead of China, so be it.

The current “trade war” with China sees Americans in a much better position than the Chinese. China needs those exports, but the USA can stand to experience some minor drag to its GDP growth given the massive growth we’re seeing with the tax cuts (not just the corporate tax cut, but also the 20% deduction for small business pass-through earnings, which is YUGE for small business growth—a key driver of employment in our country). I see it as a trade-off—pay a little more for some consumer goods, but create imbalance in the Chinese economy and force them to play ball on par with the Western world and Japan.

My only real concern with this approach is there is no limiting principle (although that’s true for any type of tax, and we have to have some of them), which makes me wary as a limited-government Jeffersonian, but the Hamiltonian commercialist in me sees this moment in history as one in which we can uniquely leverage our economic clout to improve our own economy and our position internationally, and we can afford to go through a trade war longer than China (or Mexico, or Europe).

Everyone loses if a trade war lasts too long, but I think the Chinese will blink first. American workers will be the ones to benefit.

One additional thought, which will require more elegant development in a future post:  even with the inefficiencies and deadweight loss that would occur from overly-high tariffs, wouldn’t protecting domestic jobs be a more effective and fulfilling way to provide a living for blue-collar workers than the current welfare system?  Instead of a massive, government-run bureaucracy administering a complex and redundant system of bennies, society could bear the cost through paying a bit more for consumer goods.  Such a system would create more semi-skilled positions in some industries, and I’d rather we subsidize people through work than to subsidize them not to work.  Again, that’s a very rough sketch, but some food for thought.

Regardless, tariffs are not an unalloyed evil, nor is free trade an unalloyed good.  There’s room for both.  Economics suggests that the balance should favor the latter more heavily than the former, but we can temper the massive social disruption that unbridled globalization unleashes.

Tax Cuts Work

The Portly Politico20 Comments

Back in December, I wrote a post on the old blog begging Republicans to pass tax cuts.  When they did, I danced around my house like a silver-backed gorilla on Christmas.

I cannot understand objections to the Tax Cuts and Jobs Act, other than fiscal conservatives’ fear of increasing deficit spending.  By that I mean I can intellectually understand objections in an abstract, academic sense, but I’m unable to accept those arguments as valid in this case, and many of them are specious.

The historical record is clear:  tax cuts works.  Be it cuts on income, corporate, estate, or sales taxes, cutting taxes, in general, stimulates economic growth and usually increases government revenues.

Take the example of Calvin Coolidge, whom we might call the godfather of modern tax cuts.  As president, Coolidge used his predecessor’s Budget and Accounting Act of 1921 to carefully monitor and eliminate excess government spending.  He also signed into law the Revenue Act of 1926, reducing the top rate to 25% on incomes greater than $100,000.

By the time he left office, the government had increased revenues (due to the stimulative effect of the tax cuts on the economy—rates fell, but more people were paying greater wages into the system), federal spending had fallen, and the size and scope of the federal government had shrunk, a feat no other president has managed to accomplish.

The perennial wag will protest, “But what about the Depression?”  Certainly, there were a number of complicated reasons that fed into the coming Depression, but the stock market crash—really, a massive correction—did not cause the Depression.  Had the government left well enough alone, the economy should have adjusted fairly quickly, although modern SEC rules and regulations were not in place.  That’s a discussion for another post, but I suspect that Herbert Hoover’s signing of the Smoot-Hawley Tariff (1930)—a tax increase on imports—did much to exacerbate the economic situation, and a decade of FDR’s social welfare experiments injected further uncertainty into markets.

But I digress.  Subsequent presidents have championed tax cuts in the Coolidge vein, albeit without the corresponding emphasis on spending cuts.  John F. Kennedy pushed for tax cuts, which threw gasoline onto the fire of the post-war American economy.  Ronald “Ronaldus Magnus” Reagan’s tax cuts created so much prosperity, the ’80s are remembered for hair metal and cocaine; had he not had to spend the Soviets out of existence (and faced a Democratic Congress), he could have cut spending, too.

President Trump’s tax cuts have breathed new life into a sluggish, post-Great Recession recovery.  Jobs growth is increasing month after month, and wages are rising, slowly but surely.  Black unemployment is down from 7.7% in January to 5.9% as of May—the first time it’s ever been below 7% since the government began keeping statistics in 1972.

Leftists object that the cut to the corporate tax rate benefits big fat cats instead of everyday Americans, but the statistics suggest otherwise (see the article linked in the previous paragraph for more good news).  Further, Leftists moan and groan when companies put increased revenues into dividend payments to stockholders, as if this move is detrimental.  On the contrary, as more Americans invest in mutual funds in their 401(k)s or IRAs, they stand only to gain from these investments.  Progressives only see these investments as “big company benefits,” without following through on what that money does.

Of course, that’s because the Left’s focus is emotional (not economic), and worries about all the sweet government gigs that majors in Interpretative Queer Baltic Dance Studies will lose without the federal government’s largesse.  Getting voters off the welfare rolls further inhibits the Democratic Party’s mantra of “Soak the Rich,” as upwardly-mobile workers naturally want to keep a good thing going.

Conservative concerns of deficit spending are more grounded in economic reality, and while the federal deficit seems like an abstraction to most Americans, it does present a looming crisis.  Perpetual indebtedness in a personal sense seems inherently immoral if undertaken as a financial strategy unto itself (taking out a loan for a car, a house, a business, or education is one thing; living off of borrowed money, and borrowing more, with no intention of paying it back is quite another; I’m referencing the latter situation); the government should be held to the same standard.

That said, the problem of the federal deficit is a longstanding issue that has more to do with excessive and wasteful spending.  The stimulative effect of the tax cuts, by putting more people to work, will increase revenues.  The most pressing concern now is for Congress to make the income tax cuts permanent—another no-brainer, win-win move for all concerned.

Taxes are a necessary evil—we need the military, roads, and the like—and there comes a point of diminishing returns with cuts just as there are with increases, but allowing Americans to keep more of their money is, in almost every situation, the better choice, both economically and morally.

4.8% Economic Growth?!

The Portly Politico24 Comments

Remember when President Obama, in Carter-esque fashion, gravely warned the American people that 2% annual GDP growth was the new normal?

The parallels between Obama and Carter’s doom-and-gloom economic forecasts–and between Reagan and Trump’s pro-American optimism–once again come to the fore with the latest predictions from the Atlanta Fed.

A piece at Breitbart notes that annualized GDP growth for the second quarter of 2018 is a whopping 4.8%.  And that’s despite threats of a trade war.

Maybe the scare over tariffs is premature, or the United States is in a position to benefit from playing some hardball on trade.  Free trade is not an unalloyed good, though it is certainly beneficial, and tariffs are not unequivocally bad.

Mostly, though, it seems that the tax cuts are working.  America is getting its economic groove back.  Trump is making America great again by getting government out of the way and letting business thrive.