Friday, May 02, 2008

Trade vs. the Big SUV

by Tom Bozzo

The Capital e-Times has a remarkably wrong-headed editorial trying to take Rep. Paul Ryan, the GOPipsqueak whose district includes GM's Janesville assembly plant, to task over Ryan's support for various "free trade" agreements. The Janesville plant, which assembles GM's full-size SUVs, is losing a shift and 756 hourly manufacturing jobs thanks to free-falling sales of its output. Shouldn't Ryan get a clue on trade, the editorialist wonders?

(A clue might be a lot to ask of Ryan, whose greatest hits include a Social Security privatization plan which would have put the government on the hook for investment losses in the would-have-been private accounts.)

The obvious reply is that GM's Janesville employees wouldn't likely have been building full-size SUVs but for policies that allow petroleum to enter the U.S. freely and which have declined to establish serious tax incentives for conserving it.

One of the editorial's more curious claims is that Janesville's woes can be attributed in part to "[t]he federal government's conscious neglect of the basic tenets of industrial policy." What tenets might those be? If you ignore that destabilizing-the-Persian-Gulf business, the Bush Administration has been as openly friendly to motoring by gargantuan SUV as is imaginable.

However, the CT may be on to a meta-truth on the industrial policy front. Economics tends to describe production and consumption in highly abstracted terms ('Amalgamated Widgets' etc.), and it seems that's led to an indifference to if not maybe a touch of elite contempt for actually making things. You can see that when Chickenshit John McCain gallantly tells Rust Belt audiences that good jobs are gone forever, or in the more sophisticated version you get out of someone like McKinsey's Diana Farrell (here, from an NYT roundable with Stephen Roach and Josh Bivens):
MS. FARRELL -- This is a big deal in the sense that we see something structural happening. But I would react to the notion that it is a big deal we should try to stop or recognize as anything other than the economic process of change. I think the bigger deal is the fact that we are going to have very serious curtailment of the working age population.


MS. FARRELL -- There is an assumption by protectionists that these jobs are going somewhere else, and all this money has been pocketed by C.E.O.'s who take it home. A little more sophisticated version is: It's being pocketed by companies in the form of profits. [Which is to say, knowing what we do about the distribution of the ownership of the means of production, it largely goes to the CEOs or the CEOs' country club buddies. -- TB] One step further and you say those profits are either going to go as returns to the investors in those companies, or they're going to go into new investment by those companies. Those savings enable me, if I am an investor, to consume more and therefore contribute to job recreation, and if I am a company, to re-invest and create jobs. That's important because I agree that we are migrating jobs away, some of which will never return, nor should they.
This is pretty typical of the 'can't fight Mother Nature' neo-laissez-faire view of the economy, where outsourcing to China in search of a 20 percent unit cost decrease is treated as a matter of universal gravitation rather than human agency. I can also imagine a McKinseyite thinking that the knowledge work we're theoretically specializing in has brains and electrons as inputs, and money as outputs, and who wouldn't want that instead of dirty and tedious manufacturing work. Of course, it doesn't sound quite so good in the Krugman formulation of "selling each other houses... with money borrowed from the Chinese," and when talk turns to offshoring the knowledge work, the narrative would seem to have run away from its tellers.

One thing I'd noticed scanning the notice of proposed rulemaking on U.S. automobile fuel economy standards is that Congress did stick an industrial policy provision in the enabling law: domestic passenger cars are required to have an average fuel economy that's at 92% of the manufacturer's fleet average. So there's an allowance for larger (and hence less fuel-efficient) cars to be built domestically, but perhaps not so much that manufacturers could meet the standards simply by importing the more fuel-efficient ends of their product lines. We'll see how this works out in practice, but at this point the Detroit Three's manufacturing workers' biggest problem is less the outright collapse of the U.S. car market than that they're not screwing together the more marketable end of it.

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