News and Society

In 1992, Ross Perot warned that the NAFTA agreement would lead to a "giant sucking sound" of American jobs going south to Mexico. He was part-right. There was a sucking sound, but it wasn't immediate. Many American companies moved operations south of the border a number of years after the signing of NAFTA as the Mexican government improved its system.

International trade creates wealth and prosperity. The amount of new wealth created is always greater than the amount of economic loss encountered; which means that there is enough money that is gained as a result of these changes to compensate the displaced workers. There are three possible things that the government can do for the displaced workers. The first is job retraining. The second is welfare. And the third is hiring them on to do public works.

The job retraining has been the most widely advocated approach; but so far not much has been achieved by that direction. The skills that are had by industrial workers are not easy to convert into skills in growing fields such as nursing, and the lack of economic growth for over a decade has meant that most displaced workers remain displaced. The market is not generating enough jobs, and job retraining does not result in jobs acquired. Something that works well in a growing economy does not work well in a stagnant economy, and the job retraining initiatives have mostly failed to live up to their promise.

Welfare is the least politically attractive option. The taxpayers do not want to foot the bill, and the displaced workers see being on welfare as an indignity. Welfare cycle, once started, can be very difficult to break; and, with "welfare as we know it" having ended under the Clinton administration, there is little likelihood that either party in power would be attempting to bring it back.

The idea of public works has been attacked a lot in American political debate, starting with Reagan. And yet Reagan's own family had been saved by the New Deal policies of FDR. The public works projects during the time of FDR saved a lot of American people from starvation and abject poverty; and the more recent public works projects - such as the Interstate system and the Internet - have been vast contributors to American prosperity, providing an infrastructural and informational backbone for business to do its work. Given the pressing need for both infrastructure upgrades and energy sector conversion, and the abundance of displaced blue collar workers, it makes perfect logical sense to put into place public works projects that would hire these displaced workers to do something that benefits the nation's economy and the nation's future.

This therefore should be a positive-sum match. Ongoing international trade will continue producing business prosperity, and the money gained through taxation of businesses will be enough to fund projects that put American people to work while producing works that sustain prosperity at home. The problem has been this. The taxation system in America actually gives tax incentives for outsourcing jobs, and there are many tax shelters of which the companies doing this can avail themselves. Which means that most of this money does not reach America and instead finds its way into offshore tax shelters in small islands where it benefits no one.

Now it makes every economic sense to support free trade, and I have enthusiastically done so ever since I was an economics major at University of Virginia. What makes no sense, political or economic, is giving American companies an incentive to outsource American jobs. Support and sustain free trade, but don't provide incentivizes for doing things that are not in the national interest. Provide, or don't provide, incentives for creating jobs at home; but don't provide tax incentives for moving operations overseas.

The money involved in this matter is vast, and if some of that money comes home then it would do a long way to solving America's budget debacle. Just closing some of the tax loopholes would result in hundreds of billions of dollars coming back annually to America. This money would restore budget to balance and fix all the problems associated with the budget being out of balance for as long as it has been out of balance. And the result would be not only a balanced budget, but also a sustainable prosperity.

There are two things therefore that America can do for its workers without embracing trade protectionism or sabotaging the global economy. One is bringing home the money that now find its way into offshore tax shelters; and another is using some of that money to hire the displaced industrial workers to put into place the much-needed infrastructural and energy sector improvements. The best outcome of this is that free trade will continue producing prosperity, and the American workers and budget would gain from it. And that will result in the best-case scenario of free trade continuing to produce prosperity and its benefits reaching those who are dislocated by it.

View the original article here