Because the Mainstream Media consistently fronts for the economics establishment on the big issues, the appearance of this (evidence-free) post on The New York Times website Thursday indicates that a big official theme of upcoming months will be the inability of the United States to withstand a global slowdown.
This narrative is likely to be put in service of two related sets of policies that would unnecessarily slow an already woefully subpar U.S. recovery, and worsen the global trade and investment imbalances that helped trigger the financial crisis and all the misery that’s followed it.
The first, which I wrote about recently, is the reported decision to open American markets unilaterally in order to boost growth rates overseas in the mistaken belief that the U.S. economy is strong enough to afford this handout. The second is the continuing push to conclude huge trade deals with Europe and Pacific Rim countries that would produce the same harmful results because they’re modeled after a long string of agreements that have supercharged U.S. deficits.
So it seems timely to present some new reasons for concluding that America is amply capable of prospering amid global stagnation – and even worse – and that Washington should be seeking to enhance this capacity for self-reliance, not further degrade it.
A while back, I asked why the economics conventional wisdom – and the chattering class that parrots its every claim – assumes that the enormous U.S. economy couldn’t generate an adequate level of efficiency-enhancing competition all by itself, and that its integration with the larger (but not stupendously larger) world economy is needed to achieve this important goal. I’m still waiting for an answer.
Here’s some new evidence for doubting that international competition is crucial for ensuring satisfactory product quality, consumer choice, innovation, and the like – at least where American industries are concerned: Several major sectors of the U.S. economy that easily come to mind have risen to (deserved) world-leading status while facing virtually no foreign competition at all.
The first example: long-haul commercial aircraft. Boeing today is one of only two serious global players (the other being Airbus), but before the European Union’s heavily subsidized products appeared on the market, American-made long-distance craft were the only game in town. Yes, Britain produced the first commercial jet, which came into service in 1952. But a series of accidents effectively killed the Comet, and Britain’s civilian aircraft industry, and by 1958 Boeing entered the business never to look back. It would be joined by Lockheed and Douglas, but the Americans had the field completely to themselves until Airbus’ entry in 1972, Among them, the U.S. firms manufactured generations of excellent products, along with some troubled jets like the DC-10.
I’ll be briefer on the other examples, just to get this post up sooner rather than later. But they are:
> computer software. As with commercial jets, American companies totally dominated the field for decades. Although significant foreign competition was absent, domestic competition was fierce;
> finance: Although individual European and Japanese banks and other financial institutions often dwarf their individual U.S. counterparts by various measures, collectively the American finance industry has long towered over all national rivals, and it’s the same situation for financial markets. When it comes to innovation (a mixed blessing, as the financial crisis should teach), the gap has been even wider. And again, fierce domestic competition has been the key – especially after post-1970s waves of deregulation; and
> motion pictures: Whether or not you prefer American to foreign films as a rule, there’s no doubt that the former have long ruled commercially all around the world. In fact, common features of recent and proposed trade agreements have been provisions permitting foreign governments to maintain various types of limitations on U.S. Films’ access to their domestic markets, for fear that the homegrown industry will be overwhelmed. Yes, I know there’s been a huge Bollywood industry in India for roughly 100 years. But with exceptions like Slumdog Millionaire, its offerings have limited appeal globally and simply have never come close to the box office racked up by American blockbusters.
It’s easy to explain all the above narratives with “special circumstances.” For example, American finance has reigned supreme for so long largely because the United States began the post-World War II era with nearly all of the world’s available liquidity. It also began that period with one of only three major aircraft industries not bombed out of existence (along with Britain’s and the Soviet Union’s). But these sectors maintained predominance long after postwar recovery began around the world. And the U.S. software edge, which initially benefited from military investment, grew much bigger once the largely civilian personal computing and internet revolutions took off.
Moreover, the role of special circumstances strengthens rather than undermines this post’s main argument: Foreign competition’s role has been anything but all-important. And as I’d written bein that previous post, America’s immense economy could easily generate more domestic competition – and all its benefits – with serious enforcement of anti-trust and anti-monopoly laws. Could more trade strengthen the U.S. economy still further? Absolutely. But the acid test of new agreements now needs to be not simply how their net gains compare with the situation in the absence of such deals, but how they compare with alternatives within Washington’s grasp that are entirely domestic.