Another Entry for the Hall of Shame

Senators Byron Dorgan and Sherrod Brown wrote an Op-Ed piece for the Washington Post that I am literally using as a textbook example of savy politics and economic ignorance. Apparently, I'm not the only one.

Greg Mankiw blog at Harvard takes on their arguments that government and union protection of workers is essential to middle class prosperity. He writes:

There is no doubt that most Americans have seen dramatic improvements in living standards and workplace norms over the past century. But should we really give most of the credit to "worker activism, new laws and court decisions?" I don't think so.

I would give most credit to economic growth, which in turn is driven by technological progress, a market system, and a culture of entrepreneurship. As the economy grows, the demand for labor grows, and workers achieve better wages and working conditions.

Economic studies of unions, for example, find that unionized workers earn about 10 to 20 percent more by virtue of collective bargaining. By contrast, real wages and income per person over the past century have increased several hundred percent, thanks to advances in productivity.

Similarly, working conditions are poor in less developed countries today because productivity is low there. The key to improving lives in those nations is economic growth, not "worker activism, new laws and court decisions."

Dan Drezner at Tufts picks up on the Senators' use of the "Race to the Bottom" argument. He writes:

I've written previously about the dubious nature of the race to the bottom hypothesis. Indeed, I had updated and extended these arguments in the first draft of All Politics Is Global. Ironically, this section got cut from the final manuscript -- because the academic consensus is that the race to the bottom is so easy to refute, there was no point in devoting half a chapter to it.

Don Boudreux leaves no doubt how he feels when he likens the Senators view of economics to the view of physics in a Road Runner cartoon. Moving past the derision of the Senators he gets serious and writes:

I'll content myself here with pointing out that these buffoons' fretting over the large and growing size of the U.S. trade deficit is inconsistent with their (mistaken) belief that "a global race to the bottom" is underway -- a race among corporations to set up shop in low-wage, poor countries.

A large and growing U.S. trade deficit is evidence that investment capital is flowing generously into the United States rather than away from the high-wage, high-labor-standards American economy.

Pat Cleary at the National Associations of Manufacturers (NAM) blog gives the industry response when he writes

*Trade agreements don't cause the trade deficit. Over 90% of the manufacturing trade deficit is with countries with which we have no trade agreement;


*Trade agreements open markets to US manufacturers by lowering the barriers to entry of US-made goods;


*Some 90% of what US manufacturers make overseas stays overseas. It doesn't get shipped back to the US;


*The biggest reason manufacturers locate a plant is to be near the customer. Developing areas of the world are booming for that reason -- they are customers;


*We don't compete on the basis of wages in this country, never have. To put it differently, we've competed against low-wage countries forever and won, because we are the best, most competitive manufacturers in the world. That's still true. If wages were the driver, as our trade expert Frank Vargo likes to say, Haiti would be an international economic powerhouse. Think about it.