Although I (justifiably) dump on the Mainstream Media constantly, I’m really kind of grateful for their continuing (though ever more precarious) survival and insistence on upholding even the most thoroughly debunked but still widely accepted beliefs. For as with Neil Irwin’s New York Times post yesterday, these organizations keep providing great opportunities for showing why this conventional wisdom deserves no automatic support at all.
Irwin’s subject was the generally agreed upon trade-off between (a) the freest possible global flows of commerce and the overall efficiency-spurred growth they foster and (b) the at-least-reasonable degree of economic equality that publics in America and throughout the high income world (think “Brexit”) value highly. And of course, being a Mainstream Media mainstay, Irwin accepts this trade-off as a given.
Not that he ignores the possible downside. Indeed, Irwin allows the possibility that “Economic efficiency isn’t all it’s cracked up to be,” largely because “the economic and policy elite may like efficiency a lot more than normal humans do.
“Maybe the people who run the world, in other words, have spent decades pursuing goals that don’t scratch the itches of large swaths of humanity. Perhaps the pursuit of ever higher gross domestic product misses a fundamental understanding of what makes most people tick.”
This apparent disconnect between the priorities of economic elites and the populations of countries with representative governments certainly amounts to a huge political problem. Irwin also acknowledges both the legitimacy and rationality of many voters’ evident emphasis on some non-economic priorities (like “[a] sense of stability, of purpose, of social standing”) over maximum growth.
But Irwin’s analysis still leaves intact the claim that, in the long run, opposing standard efficiency- and growth-focused policies, like continually liberalizing trade, will impose economic costs that are considerable and perhaps ultimately unacceptable. And that’s a big problem, because if you look at the actual numbers, there’s a strong case that Main Street Americans (and others) have the economics of this relationship right, too.
For example, as I’ve written repeatedly, the growth of U.S. trade deficits has retarded already sluggish overall American growth during the current recovery. And the Made in Washington portion of these deficits – characterized and fueled by the trade liberalization policy decisions of recent decades – has exacted the greatest growth toll.
In addition, U.S. economic growth before the early 1970s, when the first crucial decisions were made to keep America open to the exports of a developed world fully recovered from World War II, was considerably faster (and by all accounts more inclusive) than it’s been afterwards. If you’re skeptical, take a look at these charts, which compare the best pre-1970s American economic expansion (during the 1960s), with the best post-1970s expansion (during the 1990s).
This isn’t necessarily to say that American growth has slowed entirely or even largely because trade has increased. But there’s no shortage of valid reasons for linking the two. Consider the data-supported claims that a big reason for recent growth woes (even before the financial crisis and ensuing Great Recession) has been weak domestic business investment. I’ve pointed to evidence that the problem hasn’t been feeble capital spending as such, but a growing tendency for that spending to be made on multinational companies’ foreign facilities. It’s clearly reasonable to argue that such spending has been made a lot more profitable by trade agreements that encourage these companies to supply the high-price U.S. market from super-low cost foreign countries in the developing world.
Productivity statistics contain more reasons for doubting that more trade boosts efficiency. For just as economic growth has slowed as trade flows have surged, productivity growth generally has weakened, too. During the 1960s economic expansion, labor productivity grew by 28.96 percent in toto. By the 1980s recovery, this figure was down to 16.67 percent. It rebounded to 23.01 percent during the 1990s expansion, but has weakened dramatically since. (The figures on multi-factor productivity, a broader measure, only go back to 1987, but U.S. performance has weakened on this score, too.) Isn’t it plausible that, as more and more production offshoring of manufacturing – the nation’s longtime productivity growth leader – has proceeded, overall U.S. productivity growth would falter?
And don’t forget the slowdown in manufacturing’s own productivity growth. A reason to suppose that it’s not just production in labor-intensive sectors like apparel and shoes and toys has been sent abroad?
Finally, not even taking a global perspective strengthens claims that trade growth fosters overall growth. According to this source, the highest growth period worldwide (1961-1970) preceded that early 1970s period when U.S. trade growth, at least, took off. Reinforcement for this point: Figures from the World Trade Organization reveal that world trade in real terms was outgrowing world output by a greater margin after 1973 (1.72:1) than before (1.61:1).
Again, cause-and-effect are anything but conclusive here. And I’m sure that evidence can be found making the opposite case(s). But the big takeaway here is that the conventional wisdom on trade and growth is anything but unassailable – and that there’s an excellent chance that the trade-skeptic public understands the real relationship better than the self-appointed experts.