NAFTA

I’ve checked.  Wellesley College and Columbia University offer classes in Economics.  In fact, you can major in the subject at either school.  Is it possible that these classes are a recent offering or is it more feasible that neither Hillary Clinton nor Barack Obama ever took a class in basic economics?  One of the two must be true given their recent diatribe on NAFTA.

 

Obama’s theme has been that NAFTA is the catalyst behind many other trade agreements and that all of them are destroying American jobs. "In Youngstown, Ohio," he said in a Texas debate, "I've talked to workers who have seen their plants shipped overseas as a consequence of bad trade deals like NAFTA, literally seeing equipment unbolted from the floors of factories and shipped to China."¹

 

What does NAFTA have to do with shipping manufacturing equipment to China?

 

He has claimed that 1 million jobs have been lost as a result of NAFTA.

Mr. Obama has offered the broad goal of strengthening labor, environmental and safety standards of NAFTA, but his campaign did not respond to requests for more specific examples of how he would amend the pact, and among the extensive issue statements on the candidate's Web page, there are no details on how exactly he would like to change it.²

Hillary said in Ohio’s debate “I have been a critic of NAFTA from the beginning.” In 2004 she said, “I think we need a rethinking of our trade policies.”

 

In her primary night speech in Wisconsin she said, “Let’s be honest about something. When President Bush and VP Chaney say the economy is booming even though three million manufacturing jobs have been lost, when their administration says outsourcing is a plus for the economy…they’re sending you a clear message – the struggle of middle class and working families simply don’t matter.”  She goes on to say, “They think it would be fine if every plane, every piece of machinery, every computer, and every car were made somewhere else.”  Obama said in a speech on March 4^th, “entire cities have been devastated as a consequence of trade agreements that were not adequately structured to make sure that US workers had a fair deal.”³

 

“They” think it would be better if every durable good was made elsewhere?  Entire cities have been devastated because of NAFTA?  Sheesh….

 

The bottom line is that both candidates are on the attack.  They both believe that NAFTA has cost more jobs than it has created and both have stated that if Mexico and Canada do not renegotiate critical aspects of the trade agreement they will exercise the U.S.’s authority to terminate it.

 

At best this is insincere pandering to an undereducated electorate who want to blame something…anything… for the lost of their particular job with no consideration to the impact on the economy as a whole.  At worse, it shows they have such a fundamental ignorance of economics that while McCain has admitted that economic issues and the economy are not his strongest suit, he would appear “Keynsian” or “Freidman-like,” (depending on which side of the plate you swing from) compared to these two.

 

Some facts about NAFTA and free trade in general.

• Trade has had no discernible, negative effect on the number of jobs in the U.S. economy. Our economy today is at full employment, with 16.5 million more people working than a decade ago.
• Trade accounts for only about 3 percent of dislocated workers.Technology and other domestic factors displace far more workers than does trade.
• Average real compensation per hour paid to American workers, which includes benefits as well as wages, has increased by 22 percent in the past decade.
• Median household income in the United States is 6 percent higher in real dollars than it was a decade ago at a comparable point in the previous business cycle. Middle-class households have been moving up the income ladder, not down.
• The net loss of 3.3 million manufacturing jobs in the past decade has been overwhelmed by a net gain of 11.6 million jobs in sectors where the average wage is higher than in manufacturing. Two-thirds of the net new jobs created since 1997 are in sectors where workers earn more than in manufacturing.
• The median net worth of U.S. households jumped by almost one-third between 1995 and 2004, from $70,800 to $93,100.⁴

The second point above is what most people find surprising. Even those that concede that total job growth has been robust through these years of increasing trade deals, they contend that the average pay of these jobs have decreased.  Often cited will be the ex-$30/hour autoworker now employed in an $8/hour service sector job (the partcular job cited is about a 50/50 split between the anti-christ organization Walmart and devil incarnate McDonalds). Data from the U.S. Bureau of Labor Statistics says otherwise. “In the decade since the U.S. economy has become more globalized real compensation per hour for American Workers has risen by 22 percent.”  In a speech Ben Bernake stated, “During the 1990’s average earnings in manufacturing industries have show net declines in employment (weighted by the number of job losses) were $10.63 per hour. During the same period, wages in expanding service-providing industries (weighted by the number of job gains) were $11.26 per hour, about 6% higher.”

 

Household gains in income probably understate gains in living standards during this time.  While household income has increased, the cost of goods sold has decreased at the same time that the average number of people per household have also declined (from 3.6 to 2.6 between 1970 and 2005).  This means that there is more money per person buying products that cost less in real dollars than before.  This reduction of cost of goods is another result of free trade.

 

As much as I abhor the use of individual examples to insinuate general results, I must tell you about my experience in running a manufacturing facility in Mexico relative to worker safety and environmental standards because both Obama and Clinton are using this as a call for change.  Our safety rules are as strict as in the US.  I have found this to be the case in every factory I have been to in Mexico. 

 

The environmental standards in Mexico are tougher, plain and simple.  I actually have to have an environmental engineer on staff to deal with the regulations established by the Mexican government.  Granted, this was not always the case.  I can remember when platers would establish faclilities just over the border because they could basically dump their contaminated waste in local rivers and streams.  But that was decades ago.

 

To walk away from NAFTA would be devistating to the US economy.  It would dramatically increase the cost of products and result in lost jobs.  “Trade hurts some people, but helps many more. It raises overall income and allows Americans to buy a wider range of better goods more cheaply.”⁵ It is simple economics. 

 

 

1 Reason Magazine, February 28^th, 2008, “Why Are These People So Ashamed of NAFTA” Steve Chapman

2. Pittsburgh Post Gazette, March 2, 1008, “Candidates’ Vows to Alter NAFTA May Not Hold Up” James O’Toole

3. The Economist (3/1-3/7), Dr. Obama’s Patent Economic Medicine

4. “Trading Up – How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers,” Dan Griswold, Cato Institute October 25^th, 2007

5. The Economist (3/1-3/7), Dr. Obama’s Patent Economic Medicine