Last week was an instructive one for the chairman of the president’s Council of Economic Advisers. Gregory Mankiw was battered by leaders of both parties, hoisted by John Kerry, abandoned by his own president and forced to recant his beliefs.
What had Professor Mankiw done? He had used the “Economic Report of the President” to tutor us in free-trade theory.
In that report, Mankiw had equated the outsourcing of customer call-center jobs to India with buying manufactured goods from abroad, and pronounced both to be natural and good. “When a good or service is produced more cheaply abroad it makes more sense to import it than to make or provide it domestically.”
“Outsourcing is just a new way of doing international trade,” he explained at a White House briefing. “More things are tradable than were tradable in the past, and that’s a good thing.”
Mankiw was reciting perfectly the free-trade catechism. Yet, like a wounded boar, GOP Speaker Dennis Hastert bellowed: “I understand that Mr. Mankiw is a brilliant theorist, but this theory fails a basis test of real economics. An economy suffers when jobs disappear … Outsourcing can be a problem for the American workers and for the American economy.”
Other Republicans urged Mankiw to ponder an early return to Harvard Yard. Kerry said Mankiw had revealed the hidden agenda of the Bush administration: “They said that shipping American jobs overseas is good for America.”
Alan Greenspan, a free-trade purist, came to Mankiw’s defense, but George W. Bush distanced himself. “There are people looking for work because jobs have gone overseas,” he said in Pennsylvania, “We need to act to make sure there are more jobs at home …”
In a letter to Hastert, Mankiw backpedaled away from his beliefs. “My lack of clarity left the impression that I praised the loss of jobs,” he explained Yet, Mankiw had committed a gaffe only in the sense that Michael Kinsley famously defined a gaffe: the blurting out of a politically unacceptable truth.
As a principled free-trader, Mankiw is saying Americans should welcome a shift of manufacturing to China where the work can be done for less in labor costs, and applaud the outsourcing of white-collar jobs to India. For that, too, will leave American consumers with more money in their wallets and pocketbooks.
“If country X does or makes something with relatively low cost compared to country Y, then country X should make it. Country Y is thus released to earn higher returns on something else,” the Wall Street Journal helpfully added, rising to Mankiw’s defense.
Which is fine as theory. The problem for the GOP is this: It is an unabashed free-trade party when Americans are souring on the fruits of free trade: 42 straight months of lost manufacturing jobs, and the threat of millions of back-office jobs being outsourced to India. For the GOP, this episode should serve as a fire bell in the night.
The president is in a pickle. Not only is he a free-trader, his party gave Bill Clinton the crucial votes to pass NAFTA and grant China “Most Favored Nation” status in the 1990s, until Bush made it permanent. Newt and Bob Dole led the fight to bring us into a World Trade Organization where we are outvoted 15-to-1 by the E.U. and regularly hammered for steel tariffs and tax benefits Congress voted to help U.S. exporters.
Mankiw is saying that no matter the “creative destruction” of factory closings, no matter the white-collar jobs lost to India, no matter our $549 billion merchandise trade deficit in 2003, it is all for the best.
To Republicans who have to run in districts where jobs are disappearing, Mankiw sounds like a madman – but he is describing exactly how the global economy works.
What Republican shock over Mankiw’s truths reveals is that the chickens of this fanatical faith are coming home to roost. John Edwards swept South Carolina on NAFTA-bashing. CNN’s Lou Dobbs runs nightly reports on “Exporting America.” “Lost Jobs!” is a battle cry that can kill Bush in Michigan, Pennsylvania and Ohio.
And if he loses all three, he loses it all.
Free trade has always been an ideology of elites, of academics, scribblers and think-tank denizens. The people never wanted NAFTA, MFN for China or a WTO. And with the results of globalism now being felt all across America, the pendulum has begun to shift. If free-traders stick to their guns, they may die beside them.
When it comes down to who gets the factory and who gets the jobs, us or them, we are almost all economic nationalists, we are almost all America Firsters. Poor honest Mankiw had to find out the hard way.