Sunday, February 22, 2004
Economics 101 for politicians: One of the latest Democrat Party complaints is that President Bush is in league with "Big Business" to secretly smuggle manufacturing jobs out of the United States. The basis of this charge is comments earlier this month by Gregory Mankiw that outsourcing certain jobs overseas is good for the economy in the long run. This statement is based on the economic principle of "comparative advantage." No, saying that this is basic economics isn't the same as saying this is good politics.
So, I wasn't completely surprised by the following exchange this morning on "Fox News Sunday."
GRANHOLM: But the reality is, Chris, you've got to come to the states where it is really happening.
In my state, we just had a company last week say 2,700 jobs in a town of 8,000 — that's like a nuclear bomb going off — are moving to Mexico, even though we offered zero taxes — zero taxes — for 20 years. We gave them a new plant. The UAW came up with concessions of $32 million a year, unprecedented.
But the company, Electrolux, chose to go to Mexico because they could pay people a $1.57 an hour. How are we supposed to compete with that when we have zero taxes...
WALLACE: But how is any president going to be able to solve that?
GRANHOLM: That's why...
WALLACE: You can rewrite a trade agreement, but that isn't going to make wages the same in Mexico as they are in Michigan.
GRANHOLM: No, clearly not, but why are we subsidizing the job losses? Why aren't we providing incentives for manufacturers to stay here? Why don't we enter trade agreements that have, at least, basic core labor and environmental standards, so that you do level the playing field?
They just don't get it. She noted that Michigan had provided numerous incentives for Electrolux to stay there, but sometimes it's just not economically feasible. What good is the company if it eventually goes under because it can no longer compete with others that are using cheaper labor?
Consumers also suffer when prices stay artificially high. My Hoover vacuum cleaner recently gave up the ghost after about seven years of use. At the time, it cost me a little over $100. Now, seven years later, I purchased a nice Dirt Devil vacuum cleaner -- also for $100. You know what? The Dirt Devil is a much better appliance than the Hoover ever was.
I realize that it is difficult when jobs are lost, but the economics is solid. Those jobs will be replaced -- and replaced by better-paying jobs. It's little solace if you're drawing unemployment, but that's the way the world works.