Politics & Policy

Fear-Mongering Over Fact

The Democrats sorry argument on jobs.

Jobs protection has become the rallying cry of the Democratic presidential campaign. Yet senators Kerry and Edwards never present a clear-headed plan on how they would create new jobs. Instead, they vow to tear down growth-producing free trade treaties, an effort that would impoverish, not expand the U.S. workforce.

Among the many flaws of this year’s Democratic argument on jobs is the total absence of facts to back up the claims. Take the Democrat’s position on jobs outsourcing, their idea that the country is bleeding away a finite number of jobs to far-off places like India. Outsourcing is not a new issue, but it’s one that Democrats are using to circumvent the reality that the U.S. economy is surging toward a new boom cycle, and that it’s President Bush who has us headed that way.

Bush’s historic 2003 tax cuts — a daring plan that reduced tax penalties on capital formation by nearly 50 percent — have created a dramatic economic inflection point. After rising by a meager 2 percent rate in 2002 and the first half of 2003, the economy roared to life in the second half of last year at a better-than 6 percent pace — immediately following the implementation of supply-side tax cuts. The event caught the vast majority of demand-side pundits by surprise, but it did find a believer in Federal Reserve chairman Alan Greenspan. The Maestro now believes the 2004 economy will continue to surge near 5 percent.

The party of pessimism can’t acknowledge any of this. So instead they’re carping about the outsourcing of jobs. It’s a political ploy with no economic content. But their fear-mongering has driven consumer-confidence surveys to 4-month lows — even though the job situation is not nearly so bad.

In fact it’s pretty good. Even while large corporations have leveraged record productivity into income-recovery rather than early stage job creation, over 2 million more Americans are working in the past year, according to the Labor Department’s household survey. Behind the scenes, independent contractors and the self-employed are setting up limited-liability companies to keep more of what they earn through lower individual tax rates. This accounts for the unemployment decline from a peak rate of 6.4 percent to the current 5.6 percent.

Democrats never mention this. They also never point out that the U.S. economy has always experienced both job outsourcing and job insourcing. Between 1983 and 2003, outsourced jobs have increased to 10 million from 6 1/2 million, according to the U.S. Bureau of Labor Statistics. Jobs insourcing, however, as a result of strong foreign-direct investment in the U.S., has grown to 6 1/2 million from 2 1/2 million in this same time period. The net outsourced jobs figure peaked in the early ’80s at nearly 4 million, then declined to a trough of roughly 2 million in the early ’90s, before its recent gradual rise to just under 3 1/2 million. (The latest data is for 2001.)

And there’s another essential point undisclosed by Democrats: During this entire twenty-year period, 38 million new jobs were created at home. That achievement is unmatched anywhere in the industrialized world. Hence, despite the pandering rants of Democratic presidential candidates, there is no evidence that the free-flow of capital, labor, goods, or services has in any way impeded domestic U.S. job creation.

But there is considerable evidence that free trade allows consumers the choice of getting the best quality goods at the lowest available prices anywhere in the world. Meanwhile, businesses have opened huge new export markets that provide new jobs at home.

Modern Democrats love jobs but can’t stand the businesses that create them. They also claim to want prosperity, but don’t want anyone to get rich should prosperity come about. Kerry and Edwards, for example, propose a sharp steepening of marginal tax rates on upper-income brackets and the investments that successful earners would make. But if these policies came to pass, they would rob the economy of the vital incentives necessary to expand the supply of capital that is crucial to inventing new products, forming new businesses, and creating new jobs.

The Democratic party has literally no understanding of the dynamic job-creating process — what the eminent economist Joseph Schumpeter termed “gales of creative destruction.” In the last ten years — a period which included NAFTA, the emergence of China, and the high-tech revolution — 18 million new jobs were created, even with the 2000-02 economic downturn. Yet behind those 18 million new jobs, the economy actually wiped out a staggering 339 million old jobs while creating an astonishing 357 million new jobs.

The free-market capitalist system, by its very nature, is all about choice, competition, and freedom. Democratic ideas to restrict economic freedom by closing trade markets and steepening tax-rates will doom us to stagnation.

— Larry Kudlow, NRO’s Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC’s Kudlow & Cramer.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”

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