Politics & Policy

Jobs, Trade, and the Democrats

Did you know — better, would you have guessed? — that the top income-tax rate in India, which is the home of breast-fed socialism, is a mere 30 percent? That is down from 60 percent in 1979. How does that compare? Well, in the United Kingdom it is down from 83 percent in 1979 to 40 percent today; in the United States, from 70 to 35. In all three cases, it has been cut roughly in half.

But not all the economic news is good, and we hear, especially from upward-bound Democratic leaders, about the loss of manufacturing jobs for American workers. This is attributable, of course, to a variety of causes, some entirely bad (lax immigration laws), others good in themselves though with bad side effects (free trade, the decline in the power of the labor unions). The most alluring comparisons would be with Japan and Germany, which have the reputation of carrying their solicitude toward the domestic working classes to extraordinary lengths.

In fact, in the last dozen or so years (1992-2005), U.S. manufacturing jobs have dropped by 20 percent. In Japan and Germany the drop in such jobs is comparable. Alan Reynolds, in his masterly study Income and Wealth, unpacks some of the assumptions. “Anxiety about deindustrialization or downsizing is usually linked to international trade through catch-words like ‘globalization’ or ‘offshoring,’” Reynolds writes. “The United States is widely imagined to have ‘exported jobs’ to countries that export more than they import, such as Japan and Germany, even though manufacturing employment declined even more dramatically in those countries where overall job growth has been abysmal.”

How to cope with all the thunder about U.S. trade policies? Since Japan and Germany have run chronic trade surpluses for many years, Reynolds notes, statistics showing greater loss of manufacturing jobs in those countries than in the U.S. “contradict all trade-related explanations for the (unproven) belief the United States has long been suffering wage stagnation or increasing wage inequality.”

It is illuminating to learn that wage-earners in manufacturing in the United States take in less, sometimes far less, than wage-earners in other spheres. Those who work in utilities take in on average $27 per hour; in education, $17; in manufacturing, $16.

U.S. manufacturing jobs have been lost through automation, but this is so in every major industrial economy. The question to ask is: Have those who have lost employment on that account found jobs elsewhere? The answer is that yes, it is so in the United States, where a large number of those who have lost their jobs in manufacturing have moved to higher-skilled, higher-paying jobs in service industries. “As we discovered with the ‘vanishing middle class,’” Reynolds points out, “a rising percentage of American families left the middle class manufacturing jobs by moving up.”

“Income and Wealth” (published by Greenwood Press) is stunning in its revelations and its deflations of popular Democratic superstitions. On page 203, for example, Reynolds lists the most popular superstitions of the derogating class, including the assertions that 80 percent to 90 percent of U.S. households have experienced no increase in real income for 25 years, and that only the top 1 percent to 10 percent have received any significant benefits from the growth of productivity.

“Not one of those statements is even remotely close to being true,” Reynolds writes. “It is difficult to imagine how so many of the nation’s leading economic journalists and economists claim to believe not just one or two of these incredible ideas, but the entire package.”

Reynolds, a senior fellow at the Cato Institute, is an economist of acute precision. For years he has defended the capitalist way of doing things, and this volume is a high tribute to his championship of basic American ideas.



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