A policy symposium
Contemporary conservatism has too often lost touch with the concrete concerns of middle-class America. For a long time, conservatism thrived politically on the domestic troika of welfare, crime, and income-tax rates. The Left yowled when conservative Republicans ran on these issues, arguing they were distractions from the voting public’s true interests, or a cover for sinister sentiments, or both. But people genuinely hated the perversity of the old welfare system; they truly feared crime; and high income-tax rates — and inflation-driven bracket creep — really did take a big bite out of family budgets.
Conservative success over the years — through welfare reform, tough anti-crime policies, and the income-tax cuts of Ronald Reagan and George W. Bush — has reduced the salience of the old triad. Conservatives have yet to fill the gap. In fact, the situation throughout the 1980s, when the Left mired itself in old orthodoxies while the Right addressed the country’s problems, has been almost exactly reversed. Now it’s conservatism that often feels trapped in amber, wishing it were still 1983.
John McCain’s inability last year to address middle-class pocketbook and quality-of-life issues wasn’t solely due to the ineptitude of his campaign. It reflected a larger lack of interest in doing so on the right, and a lack of consensus over how exactly to go about it. In a disturbing post-election survey, the polling firm TargetPoint Consulting found that people overwhelmingly identify the Democrats with the middle class. If Democrats can keep that advantage, they will be in the majority for a long time.
This ascendancy shouldn’t go unchallenged. Conservatives have a battery of free-market-oriented policies to direct at the problems of the middle class as it lives today. Some of these policies have to do with big, traditional issues (health care and the tax burden on families), while others address concerns that have usually been beneath conservative notice (traffic congestion and the frustrations of air travel). In what follows, our authors present a dozen such conservative ideas for the middle class. They are offered in a tentative spirit, as the start of what should be an intense discussion on the right about how to engage the middle class again.
Some of our friends will object to the very notion of policies that aim to help a particular “class.” But the policies we are highlighting do not seek to improve the average person’s lot at someone else’s expense. They aim to strengthen the country by encouraging such middle-class virtues as thrift, industry, self-reliance, and mobility. We are, after all, a middle-class nation, and that self-definition is something an intelligent American conservatism should strive to conserve — for the health of both America and conservatism.
1. ENCOURAGE PARENTHOOD
Married couples raising children are the core of the middle class. Yet for all the pandering by both parties to middle-class voters, our tax code continues to discriminate against the investment these parents make by raising and rearing future taxpayers. Low-income families have the Earned Income Tax Credit, and high-income taxpayers have dependent exemptions (whose value is greater in the upper tax brackets), but the middle class gets much smaller benefits. A tax reform that aims to appeal to the middle class while advancing the interests of all Americans would therefore be wise to focus on this anomaly.
Key to such an approach would be to expand the child tax credit (to $5,000 per child, for instance) and make it available to all parents up to the amount they pay in combined income and payroll taxes. Such a move should be part of a broader tax reform that would cut the number of tax brackets and drastically reduce the number of itemized deductions, among other changes. Such a reform could be made revenue-neutral, or nearly so, and would for the first time make the tax code evenhanded toward child-rearing rather than imposing extra costs on middle-class parents.
Some conservatives would object to such a reform on the grounds that it would not directly encourage economic growth, would take many families off the tax rolls, and would use the tax code for social engineering. But the investment involved in raising children (on whom our entire entitlement system is based) is currently overtaxed, so in the long run, cutting those taxes would encourage economic growth by encouraging family growth. Families taken off the tax rolls by the credit would come back when they had raised their children — which wouldn’t happen, for instance, to families removed from the ranks of taxpayers under a flat tax. And some social engineering through the tax code is unavoidable, so why not use it to promote the growth and strength of families — a conservative objective if ever there was one? Few other policy reforms could speak as powerfully to the middle class while advancing conservative ideals.
– Mr. Levin is the Hertog Fellow at the Ethics and Public Policy Center and a senior editor of The New Atlantis.
2. MAKE SAVING EASIER
Americans save too little, and everyone knows it. Some government policies make it harder to save, or reduce the incentive to do so; other policies are designed to encourage saving, but these are often ineffective. Americans on the middle to lower rungs of the economic ladder, in particular, have little in the way of assets, in part because of the burden of payroll taxes.
One reason President Bush sought to include a personal saving option within Social Security was to help these people accumulate capital, but Democrats blocked him out of fear that the proposal would undermine the whole program. Their alternative — talked up by such Democrats as White House chief of staff Rahm Emanuel and budget chief Peter Orszag — has for a decade been to create a new savings program outside Social Security. People whose companies do not offer 401(k) plans could contribute to this program and get a matching grant in the form of a tax credit. A “saver’s credit” already exists, but it is limited, complicated, and unknown to most taxpayers. Legislators should address those inadequacies.
They should also look at other ways to make it easier for people to save. Companies that have new employees participate in 401(k)s unless they opt out tend to have higher participation than companies that adopt the opposite default setting. Some companies have also boosted contribution rates by setting them to increase gradually over time — again, with opt-outs. But state regulations are an obstacle to these practices. Governors and state legislators should remove them.
Mark Iwry of the Brookings Institution and David John of the Heritage Foundation have proposed creating “automatic IRAs.” Businesses that do not want to administer 401(k) programs or match employee contributions to them could serve as a conduit for automatic paycheck deductions into tax-advantaged savings accounts. Employees would get some of the main benefits of a 401(k) without burdening businesses. (The proposal has been designed so that it will not prompt companies to drop their 401(k)s for the new program.)
The idea that ordinary people can invest for their retirements is getting a bad rap right now, as it has in previous bear markets. We’ve all heard the joke about “201(k)”s. But long-term participation in capital markets is still a good idea, maybe a better idea than ever. Millions of people would be better off if they had invested more in previous decades. They would be more economically independent — and almost certainly, as a result, more conservative in their politics. Republicans should work with Democrats to invest in a free-market future.
– Mr. Ponnuru is a senior editor of National Review.
3. REDUCE HEALTH-CARE COSTS
Market-based health-care reform, when properly explained, can have real appeal to the American middle class. Most families must deal with a difficult health condition of some sort, and while they would welcome any change that makes it easier to pay the bills, they don’t want the government to stand in the way of promising breakthroughs. That’s why Americans are sensibly wary of giving the federal government too much power and control over their health-care arrangements. Market-based care would control rising costs without imposing regulatory barriers to cutting-edge care.
A properly functioning marketplace would reward efficiency and innovation by letting cost-conscious consumers seek out better care at lower cost. In time, competition would bring real changes to how health care is provided and slow the rise in premiums that is putting pressure on so many family budgets.
The middle class would also stand to gain the most from the tax changes that are central to a market-based reform strategy. Today’s open-ended tax preference for employer-paid insurance premiums confers the most benefits on workers with expensive insurance and high incomes. As an example, excluding $15,000 in health insurance from income taxes is worth $1,500 to someone in the 10 percent marginal income tax bracket but $5,250 for someone in the 35 percent bracket.
Market-based reform plans would eliminate this imbalance by substituting a fixed tax credit for the open-ended deduction and shifting control from employers to individuals and families. During the 2008 campaign, Sen. John McCain proposed a $2,500 per individual or $5,000 per family tax credit for health insurance. These credits could be used to purchase insurance through an employer or on the open market. The nonpartisan Tax Policy Center estimated that the McCain plan would reduce tax costs for the average middle-class family by nearly $1,300 per year in 2013. Higher-income households would benefit much less.
Giving families financial control and ownership of their health insurance would also bring more security, as many of the uninsured lack coverage because they are in between jobs. With ownership and control, families could keep the same insurance as they change jobs or leave the workforce for such purposes as further education. Would-be entrepreneurs could also take more job risks without the fear that a business failure would mean loss of health coverage.
– Mr. Capretta is a fellow at the Ethics and Public Policy Center and a health-policy consultant.
4. IMPROVE EDUCATION TAX BENEFITS
Americans have always viewed education as the best ticket to the middle class and beyond. And in today’s global economy, Americans must increase their investment in education, just as some of our major foreign competitors have done. For instance, Chinese consumers spent $72.6 billion on education in 2007, which is 62 percent more than they averaged in the previous five years, according to Euromonitor International.
To date, most conservatives have viewed education as a second-tier policy issue, and the results of this neglect are clear. The standard conservative education platform of school choice, block grants to the states, and abolishing the Department of Education has little appeal to middle-class suburban voters, especially independents. Here’s an idea that would: a universal education tax deduction.
The current tax code includes preferential treatment for investments in physical capital, such as plant and equipment spending, but not for investments in human capital, such as education — even though both forms of investment contribute to productivity and economic growth. Under a universal education tax-deduction plan, taxpayers would be allowed an unlimited above-the-line deduction for certain qualified tuition and related expenses incurred by students attending primary, secondary, and post-secondary institutions, and for certain expenses related to home schooling and tutoring. To ensure that low-income families also benefit from such a tax plan, a refundable tax-credit component could be added.
Ideally, taxpayers would be allowed a dollar-for-dollar tax deduction for all qualifying expenses. However, given the exploding budget deficit, policymakers could offset the plan’s revenue cost by reducing or eliminating a number of redundant education tax provisions in current law, such as the exclusion for employer-provided education assistance, a deduction for qualified higher-education expenses, the Section 223 special deduction for teachers, tax exemption for scholarships, the HOPE credit (created under Bill Clinton), and the Lifetime Learning credit, among others. Ending these education-related tax preferences would generate about $7 billion annually. It would also simplify the tax code by eliminating duplicative education tax programs, which are often riddled with complex rules and regulations, in favor of a simple tax deduction for all educational expenses available to all taxpayers.
From a policy perspective, this proposal would do the following: provide neutral tax treatment for education expenses, thus recognizing the investment nature of education; increase the level of federal education support without expanding federal bureaucracies; enable parents to make better educational choices for their children; make higher education and continuing education more affordable; and simplify the tax code for millions of taxpayers.
Politically, a universal education tax deduction would have great appeal to the broad middle class; it would energize conservatives behind tax relief for parents who send their children to private schools or home-school them; and, more important, it would win over parents who are scrimping and saving so that their kids can go to college.
– Mr. Conda was assistant for domestic policy to Vice President Dick Cheney and senior economic-policy adviser to the Mitt Romney for President campaign.
5. FIND ALTERNATIVES TO THE B.A.
You are the college-age child of middle-class parents, told since you were sentient that you must go to college. You’re smart enough, but academics aren’t what you like, and getting a traditional liberal education would be like having a four-year toothache. You’re a sports nut and want to get into the pro-sports industry. So you check out some college websites. Good news: There are colleges that offer majors in sports administration. You look at the course catalogues and find eight or ten courses that you really want to take. You can get those out of the way in two years, maybe a year and a half.
Then your high-school counselor tells you the bad news: Getting the classroom training you need isn’t enough. If you don’t get a bachelor’s degree, you will not get a job interview. You can earn the degree if you must, filling out the other two years with gut courses. But your parents’ middle-class income doesn’t leave money for college tuition, so you’re going to have to take out student loans. You’d much rather skip the two needless years and get on with your life.
I have just described the kind of situation that faces hundreds of thousands of middle-class young people who attend four-year residential colleges. It’s senseless. The B.A. has become the union card for social respectability (“only a high-school graduate” has become a sneer), even as it has become uninterpretable as a job qualification. These days, assuming that someone with a B.A. knows anything is iffy — employers routinely report that they get applicants with B.A.s who cannot write a coherent paragraph.
The existence of so many residential colleges isn’t the problem. Colleges should continue to be full of students, some of whom will be pursuing a traditional liberal education. But students shouldn’t have to stay there for four years just to get a piece of paper that costs so much and signifies so little.
So let’s stop it. Let’s use the CPA exam as a model, and substitute certifications for the educational credentials that young people take into a job interview. The certifications can be based on multiple-choice tests, writing samples, and work samples in any combination — whatever enables the employer to assess what applicants know and are able to do, not where they learned it and how long it took them.
New laws aren’t necessary. Resentment of the B.A., with its five- or six-figure price tag, already hovers near the boiling point. Students, faculty, parents, and employers are all increasingly aware of the sham it so often represents. Tearing down the gate-keeping role that the B.A. has acquired in American life could be as simple as starting to talk about it.
– Mr. Murray is the W. H. Brady Scholar at the American Enterprise Institute. His most recent book is Real Education: Four Simple Truths for Bringing America’s Schools Back to Reality.
6. BOOST TEACHER QUALITY
At the 2008 Democratic convention, Barack Obama promised to “recruit an army of new teachers and pay them higher salaries and give them more support, and in exchange I’ll ask for higher standards and more accountability.” Like most of what Obama says, this sounds wonderful. The trick, though, is that if you consider only objective factors, it’s very hard to tell good teachers from bad ones.
All the observable characteristics that researchers can measure, including everything from licensure status to verbal acuity, explain less than 10 percent of the variation in student performance across classrooms. While the nation’s 3.3 million teachers matter a lot, credentials and seniority have very little to do with how well they educate our children. Yet credentials and seniority are what determine most teachers’ pay.
Leaving such formulas aside, competent school and district leaders have a pretty good idea of which teachers are doing good work. Like anyone who runs an organization where paper metrics are poor predictors of quality, they should be able to compete aggressively for the widest possible pool of talent, monitor performance, weed out mediocrity, and reward excellence. The reason they usually can’t do this is that our schools still rely on the industrial model that prevailed for most of the 20th century.
In that era, intelligent woman college graduates who did not want to be secretaries had little choice but to teach. With an immense pool of smart women at their disposal, schools adopted seniority-driven pay scales that ignored performance. Teachers appreciated the convenience and predictability of such systems, and while they sometimes became frustrated at their slow progress up the ladder, they had few other options. And states, with no need to worry about a shrinking applicant pool, erected burdensome licensure systems. With these barriers to entry and advancement in place, it is no surprise that, as more jobs opened to women in the 1970s, the quality of new teachers plunged. To make things worse, by swelling the ranks of teachers at a pace that has dramatically outstripped student enrollment in the past half century, states have aggravated the talent shortage while consuming dollars that might have rewarded good teachers.
How can schools address this situation? Overhaul state licensure systems, which deter applicants who have not been credentialed by schools of education, to make them receptive to talent — including Teach for America recruits and career switchers. Emulate education officials Joel Klein of New York City and Michelle Rhee of Washington, D.C., by devising smart ways to evaluate performance and then pushing to remove ineffective teachers. Put new dollars into rewarding excellence, scarce skills, and challenging assignments instead of making new hires. And, since having teachers do the same job for decades is a sure way to repel talent, rethink the profession to include more options for change and growth.
– Mr. Hess is director of education-policy studies at the American Enterprise Institute. His books include A Qualified Teacher in Every Classroom?
7. STOP DISCOURAGING START-UPS
Adam Sweet is an Oregon college student who organized some friends into a moving business with a specialty in medical clinics. Alan Merrifield is a Californian who ran a pest-control business free of chemicals and poisons. Both were shut down by occupational-licensing laws that largely serve to protect entrenched business interests while doing little or nothing to protect the public.
Licensure laws make it difficult to start a business or pursue one part time. If you turn a buck from your knack for planting rosebushes or arranging their flowers, you could find yourself fined and jailed for practicing unlicensed landscape architecture or outlaw floristry. These laws keep innovation and new competition out of the market — and, in the process, they make everything more expensive, from interior-design services to medical care.
In the cases of Sweet and Merrifield, challenges from the Pacific Legal Foundation forced authorities to admit what everybody knows: These laws exist mostly to protect politically connected businesses. In the case of the moving company, the law allowed other movers — but not the general public — to challenge the licensing of a new competitor. In the case of the pest-control firm, laws were specifically written to carve the market up into cartels particular to different kinds of pests — one license for seagulls, another for rats. “Somehow the state has become confused in its priorities,” Merrifield said. “It’s supposed to protect its citizens, not the rats, mice, and pigeons that invade their homes.”
There’s much to be gained by liberalizing these regulations. In New Zealand, for instance, some basic dental services are available from graduates of two-year professional programs, but experiments along those lines in the United States have been blocked by the American Dental Association, ensuring that no cavity is filled except by expensive, licensed guild members with four years of undergraduate work, a doctorate, and ADA approval. Whether in pest control or furniture hauling, small businesses drive employment, and consumers benefit from having more choice and competition in the marketplace. We may want to keep licensing neurosurgeons, but rat-catchers and interior decorators don’t need a government charter.
– Mr. Williamson is a deputy managing editor of National Review.
8. LIBERATE HOMEWORKERS
In Congress and in state capitals, liberal politicians have learned the hard way not to pick a fight with America’s homeschoolers. When they do, they get jammed phone lines, bulging in-boxes, and spirited (but, of course, erudite) condemnation. The effect is reminiscent of conservative efforts in the 1970s to organize and activate millions of homemakers to defeat the Equal Rights Amendment and resist government intrusions into matters of family, faith, and child-rearing.
It’s time to organize and activate another potentially powerful domestic constituency: the American homeworker. (Sorry, kids, I don’t mean you. Go do your math.)
Definitions and estimates vary, but it’s safe to say that at least 30 million Americans own home-based businesses or work at least part of their week at home, either as independent contractors or as telecommuting employees. These homeworkers play a major role in alleviating traffic congestion — a role far bigger than that of mass transit in all but a handful of U.S. cities — and represent the leading edge of technological transformation.
Despite endless political blather, policy has failed to accommodate the expanding ranks of home-based entrepreneurs, flex-timers, and freelancers. Governments at all levels tax them punitively, obstruct their opportunities, and make their lives unnecessarily complicated. Here are the key elements of a Homeworker Liberation Agenda:
– Congress should preempt goofy state tax codes that force homeworkers to pay income taxes in both their resident states and those housing their employers. Congress should also enact legislation encouraging employers and employees to work out mutually advantageous arrangements about comp time, flex time, and overtime pay, and removing the barriers to such arrangements.
– Both the states and Congress should make clear that heavy-handed workplace-safety laws will not be extended to home-based businesses or offices.
– Local governments should liberalize outdated zoning codes that keep people from running businesses in their homes, particularly businesses not involving customer traffic. Because many localities fund transportation infrastructure with property taxes rather than usage-based charges (such as gas taxes and tolls), they should grant full-time homeworkers a credit against their annual property-tax bills.
The natural political home for tens of millions of homeworkers is the conservative movement. But to win their support, we must go beyond platitudes and advocate practical solutions to their problems.
– Mr. Hood is president of the John Locke Foundation, a public-policy think tank in North Carolina.
9. RELIEVE TRAFFIC CONGESTION
Of the major problems in America that affect the middle class, traffic congestion is perhaps the most solvable. While the media discussion of transportation has focused on “crumbling infrastructure,” the bigger drain on middle-class prosperity is highway congestion in America’s metropolitan areas. The Texas Transportation Institute’s 2007 Urban Mobility Report showed that Americans spend a whopping 4.2 billion hours per year sitting in traffic — up dramatically in the last 25 years.
This does not even take into account the costs associated with growing uncertainty about travel times, distortion of real-estate markets, wasted fuel, increases in emissions, and diminished access to job centers. Instead of spending time with their families, participating in civic life, or investing in their careers, millions of middle-class Americans are stuck sitting in cars.
The root cause of congestion is quite simple: Prices aren’t set to balance supply and demand. Imagine if consumers paid the government a weekly food tax that permitted them to take all the food they wanted from any grocery store. This policy would create massive food shortages. Yet, by and large, that’s how we pay for highways in America. As long as highway prices have little to do with highway costs, congestion will be inevitable.
Recently, however, serious cracks in status-quo defeatism have emerged. Thanks to technology breakthroughs, such as electronic toll tags and stickers, most major metropolitan areas are now in the process of implementing state-of-the-art, variable time-of-day road-pricing programs. The projects completed to date reveal four critical points: 1) variable pricing immediately and sustainably reduces congestion; 2) the more road space you price, the cheaper the price; 3) most drivers love the experiments once they’re implemented; and 4) pricing can be installed on a road in a matter of months.
With a growing body of research and real-world demonstrations, policymakers now have a firm foundation on which to build. Pricing policies can be flexibly integrated with mass-transit investments, targeted subsidies to low-income people, and tax cuts. In addition, pricing can attract private-sector debt and equity capital to upgrade infrastructure. Implementation is sometimes tricky, and it requires a lot of data to get the pricing right. But very few other policies can achieve so many “wins” as variable pricing can when properly designed.
– Mr. Duvall was acting undersecretary for policy in the Department of Transportation in the George W. Bush administration.
10. UPDATE OUR AIRPORTS
In the 30 years since Congress enacted airline deregulation, air travel has become affordable for the average family. Respectable studies put the annual savings to consumers thanks to airfare competition at $10–20 billion. The trade-off is that plane travel today is more like bus travel than like the luxury service it used to be — but I think that trade-off is serving us better than the alternative of going back to monopoly-priced airline cartels. So the first principle of air-travel reform is: Do no harm, by leaving deregulation alone.
The second thing to realize is that when Congress deregulated airlines in 1978, it left unchanged the way air travel’s infrastructure is provided. Airports and air-traffic control, while marginally better than in 1978, are still run mostly by tax-funded government bureaucracies. Today’s congestion, in the skies and at a handful of major hub airports, stems directly from this non-market aspect of aviation infrastructure. That means we still have unfinished business from 30 years ago: Deregulate (or “marketize”) airports and air-traffic control.
For congested airports, like those in the New York area and a handful of others, the most important reform would be congestion pricing of runways. Today’s landing fees are proportional to the weight of the plane, which encourages airlines to clog these airports with lightweight regional jets providing hourly service (e.g., from New York to Chicago), when the same number of passengers could be accommodated on larger jets operating every other hour. But no airline wants to be the only one to reduce flight frequency, so they all create a “tragedy of the commons,” producing massive delays. Market-value runway pricing would change those incentives, dramatically reducing congestion.
Air-traffic control needs to be reinvented as well, so it will have enough capacity to handle continued growth at an affordable cost. This means replacing manual, radar-based control with GPS satellite navigation, digital communications, and automation of routine functions. But it also requires institutional reform. Instead of being a tax-funded, congressionally micromanaged bureaucracy, the air-traffic organization should be detached from the FAA and converted into a user-funded, user-governed nonprofit entity like the highly successful Nav Canada (and similar entities in Australia, Germany, the U.K., etc.). That would free it from interference by Congress and dependence on always-uncertain annual appropriations.
Those changes would finish the job Congress began with the Airline Deregulation Act of 1978.
– Mr. Poole is the Searle Freedom Trust Fellow and Director of Transportation Policy at the Reason Foundation.
11. LOOSEN HOUSING MARKETS
After Gov. Jon Corzine’s lackluster 2009 state-of-the-state address, New Jersey Republicans — beleaguered after a long run of stinging defeats — suddenly perked up. Once considered a serious contender for national office, Corzine is now seen as a miserable failure, and his credentials as former CEO of Goldman Sachs no longer seem quite as impressive. But in order to win back New Jersey, not to mention other heavily urban states, Republicans will need to address the housing affordability crisis.
“Crisis” might sound a little strong, particularly when we’re going through a massive housing collapse, with prices plummeting across the country. Yet even now, housing prices in New Jersey run far ahead of average incomes. The result is that the state is hemorrhaging middle-class families, who can no longer afford to live close to their jobs. And this isn’t just New Jersey’s problem. Across the Northeast and coastal California, broken housing markets are sapping the economic vitality of some of our biggest, densest, most productive regions. In the short term, New Jersey’s loss is, say, North Carolina’s gain. Over the longer term, however, America’s economic edge will erode if we can’t make all our regions into engines of upward mobility.
What is the cause of the affordability crisis? Although high demand for housing should mean a high rate of housing construction, which in turn should keep prices low, New Jersey is one of several states in which high demand runs into severe supply constraints at the local level. For the most part, this is motivated by simple NIMBYism: Homeowners and historic preservationists want to keep their towns construction-free, if only to keep property values high.
As economists Edward L. Glaeser and Joseph Gyourko explain in Rethinking Federal Housing Policy, the home mortgage interest deduction, which is designed to increase the availability of owner-occupied housing, has a perverse effect in supply-constrained regions: Instead of making it easier for people to buy houses, it simply bids up the price. To help ease the problem, Glaeser and Gyourko propose capping the home mortgage interest deduction in supply-constrained counties to $300,000 of mortgage debt rather than $1,000,000. The revenue generated by the lower cap would be given to local governments that allow new construction.
There is a real political risk here. In the short term, affluent homebuyers will feel the pinch of the lower cap. At the same time, however, this measure will put the GOP on the side of those middle-class families who can’t afford decent housing, a large and growing constituency.
– Mr. Salam is an associate editor at The Atlantic and co-author, with Ross Douthat, of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.
12. DEFEND FREE TRADE
Trade policy works for the middle class when Americans are free to buy the lowest-priced and highest-quality goods and services from all over the world. Wal-Mart, the nation’s largest importer of containerized freight, saves American families an estimated $2,500 a year. Global competition drives down prices for consumers, and market-opening trade agreements create export opportunities for businesses large and small. Protectionists argue that these trends have destroyed jobs and hurt the middle class, and that President Obama should erect trade barriers to mitigate the damage. Upon a closer look at the data, their arguments crumble.
Since the mid-1990s, trade between the U.S. and the rest of the world has grown by an average of 7.5 percent a year, and the trade deficit (imports minus exports) has grown by an average of 14.5 percent a year. During that same period, the economy added an average of 1.25 million new jobs a year, and the average unemployment rate was a very low 5 percent. Spikes in unemployment during the recessions of 2001–02 and late 2008 coincided with declines in both total trade and the trade deficit, as Americans had less money to spend on imports. High rates of job creation, on the other hand, were accompanied by high rates of trading activity. Trade is a sign of a healthy, dynamic economy.
Another sign of a healthy economy is job churn — the volume of jobs created and destroyed. Job churn is highest during periods of rapid economic growth, and it is driven primarily by people’s leaving their jobs for better opportunities, not by layoffs. Trade increases the efficiency of this process. Without government interference, inefficient domestic industries either become more efficient or lose business to import competition. Greater efficiency means lower prices, which leave consumers with more money to save and invest or spend elsewhere. On balance, this activity creates more jobs than it destroys.
Tariffs and other protectionist walls, by contrast, tend to destroy more jobs than they save. A small group of American manufacturers have worked Congress into a frenzy over China’s exchange rates, and they are pushing for a 27.5 percent tariff on all Chinese imports. A tariff of that magnitude would impose immediate costs on American consumers — who bought $28.2 billion worth of stuff from China last November alone — and the inevitable retaliatory tariffs would shut down the fastest-growing market for American exports. That would be unwise even in the best of boom times. In a global recession, it would be catastrophic.
– Mr. Spruiell is a staff reporter for National Review Online.