Sunday, January 22, 2006

The finest government other people's money will buy, part II

Manuel Obrador wants to win Mexico's presidential election by promising everything to the poor. In the latest example of how politicians envision grand "economy-saving" projects, the mayor of Flint, Michigan, wants the city to build and operate a truck accessory manufacturing plant, though General Motors' slow asphyxiation should give them clues.

You would think that Michael Moore's hometown would have finally learned after its disastrous attempts at government stimulation of the economy, especially pouring $100 million into Autoworld (which lasted just six months). As always, where angels fear to tread, politicians have no trepidation in spending other people's money on grand schemes. If the private sector saw the possibility of operating a new auto plant, it would have already done so. Private investors would have already recognized Flint's supply of eager, skilled and unemployed auto workers, and the opportunity that all the major automakers (so the mayor implies) are forsaking.

Appropriately, I was listening to Erasure's "Ship of Fools" when I came across the news story. That song would be great for the introduction (and title too) for a real documentary on Flint's politicians, which we can bet Moore would never do. Never mind Moore's rabidly anti-Bush, anti-gun agenda: he's most dangerous for advancing protectionist economics, especially his lament (ever since "Roger and Me") of Americans losing jobs to outsourcing. As Bastiat explained in The Law, protectionists are those who cannot compete, so they perform "legal plunder":
See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.
I am not unsympathetic toward those who lose their jobs, having been there myself. However, let them find other jobs. Certainly their hands and their brains enable them to perform other livelihoods. And if they cannot improve themselves, if they can find only lesser-paying jobs, then as I've said before, perhaps they are not as competitive as they think. Why should government coerce the many into bearing the burden of "protecting" those uncompetitive few?

The worst is when government touts certain spending projects as good because "they create jobs." Both Republicans and Democrats have perpetuated this myth for decades (following in the footsteps of the Whigs in the early 19th century), erroneously portraying such spending as "good for the economy." Sadly, we need not look beyond recent history for examples: the transportation bill of 2005 (full of pork for both parties, in literally every Congressional district), and government subsidies to various industries (like corn and wheat), and the West Side Stadium proposed for Manhattan. They all defy Bastiat's simple principle that government spending necessarily deprives the private sector of an equal amount. Thus government spending is only a transfer of spending, at best. As we shall see in a little, government spending to substitute for the private sector actually turns out to spend more for less.

Schenectady, my father's hometown, could be considered Flint's twin: both were once major centers of heavy manufacturing, and once the local industry declined, the population decreased dramatically. Like a lot of other Schenectady natives, my father worked at its big General Electric plant. Following Flint's mayor's rationale, shouldn't "The City that Lights and Hauls the World" (its old nickname) spend untold millions to restore GE to its glory days and "revitalize its economy"? Just like in Bastiat's satire The Candlemaker's Petition, wouldn't every last portion of the economy benefit, if government enacted policies to create jobs? To put it in a modern twist, let us ban all foreign-made light bulbs, and their domestic replacements can be made in Schenectady. The population would increase, expanding the tax base. Furthermore, it would expand employment for everyone else, from farmers and grocers to loggers and masons to computer technicians, as the newly employed would spend and save (invest) their money.

It does not take much thought, once we put things in modern terms, to see the absurdity of government forcing job creation. Bastiat would additionally tell us that we see the additional jobs, but not the great expense to all of society in creating them. Protectionism ultimately costs everyone more than the relatively small benefits to those whose jobs are "protected," because if these jobs could have been created for free, the free market would have already done it. But because the cost to each of us is fairly small, we tolerate protectionism, like tariffs for sugar farmers (at the expense of higher candy prices, or candy jobs lost to Canada, which doesn't have sugar tariffs) or direct cash subsidies to corn growers for ethanol.

I initially supported President Bush's tariffs on foreign steel, for I was a protectionist then. W. James Antel pointed out that even Robert Zoellick, then the U.S. Trade Representative and therefore someone who should have known better, supported the tariffs. Like any others who favor protectionism "to save domestic jobs," we argued that a few dollars per refrigerator, or $25 per car, was worth it so we wouldn't lose more jobs. But when we add up the full and true costs, more jobs were lost than were saved. Americans for Tax Reform noted a Consuming Industries Trade Action Coalition study that calculated 200,000 jobs lost because of the higher steel prices (the more expensive something is, the less people tend to buy of it, especially if there are substitutes). Pete du Pont in the Washington Times clarified that these were jobs dependent on less expensive foreign steel, and if they relied on domestic steel, their finished products became too expensive to sell at the previous rates.

Schenectady and Flint had their heyday, but times change, and economies shift. At times I hear the complaint, "I lost my job, which is what my father did all his life, and his father before him." What difference does that make? For too many thousands of years, before humans developed the technology to improve our quality of life, each generation handed down the drudgery of back-breaking farm labor to the next. We should fear neither new technology nor outsourcing, because the resulting destruction of jobs is mythical. As Schumpeter explained, the "creative destruction" of technological advancement will put people out of work, but it simultaneously frees them to find new and better jobs -- if they are competitive enough.

Buggy makers are an example I've used before: weren't their jobs threatened by the automobile? Weren't glassblowers' jobs threatened by the advent of semiconductors? Yet people survived, and the successful ones were so because they improved their skills to take advantage of the economic changes.

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