One does not need to be particularly good at hearing to decipher the dog whistles being used during this year’s election campaign in the US. Listen even briefly, and you will understand that Mexicans and Chinese are working with Wall Street to forge lousy trade deals that rob US workers of their rightful jobs, and that Muslims want to blow everyone up.
All of this fear mongering is scarier than the usual election-year fare. It is frightening to people in foreign countries, who can conclude only that voters in the world’s only superpower have become dangerously unbalanced. And it is frightening to Americans, who until recently believed — or perhaps hoped — that they were living in a republic based on the traditions established by former US presidents George Washington, Abraham Lincoln and Teddy and Franklin Roosevelt.
However, what is even more unsettling is the political reality this rhetoric reflects. There can be no comparing Democratic presidential hopeful Bernie Sanders’s policy-oriented critique of neoliberalism to the incoherent bluster of Donald Trump or Ted Cruz on the Republican side. And yet, on both the right and the left, a common narrative is emerging — one that seeks to explain why the incomes of working and middle-class Americans have stagnated over the past generation.
Unfortunately, this narrative, if used as a basis for policymaking, will benefit neither the US nor the rest of the world; worse, it has yet to be seriously challenged. For decades, senior Republican politicians and intellectuals have been uninterested in educating Americans about the realities of economic policy. And Democratic frontrunner Hillary Rodham Clinton has been too busy trying to fend off Sanders’ challenge.
Broadly, the narrative goes something like this: US middle and working-class wages have stagnated because Wall Street pressed companies to outsource the valuable jobs that made up the US’ manufacturing base, first to low-wage Mexicans and then to the Chinese. Moreover, this was a bipartisan effort, with both parties unified behind financial deregulation and trade deals that undermined the US economy. First, the North American Free Trade Agreement led to the export of high-quality manufacturing jobs to Mexico. Then the US established permanent normal trade relations with China and refused to brand its government a currency manipulator.
The reason this narrative is wrong is simple. There are good reasons why the US adopted policies that encouraged poorer countries to grow rapidly through export-led industrialization. In helping Mexico, China and other developing countries grow, the US is gaining richer trading partners. Furthermore, there is a strong case that US national security would be improved if, 50 years from now, schoolchildren around the world learn how the US helped their countries prosper, rather than trying to keep them as poor as possible for as long as possible.
It was not globalization that caused incomes to stagnate. Trade with countries like China and Mexico is just one factor affecting income distribution in the US, and it is by no means the most important one. The reason that incomes have stagnated is that US politicians have failed to implement policies to manage globalization’s effects.
As Steve Cohen and I argue in our book Concrete Economics, macroeconomic management requires the government to do what it always did before 1980: pragmatically adopt policies that promote equitable growth.
There were good reasons for the US to offload industries that required low wages to be globally competitive, but there was little reason for the US to offload industries that had become important “technology drivers.” Nor were there good reasons for a lot of other bad decisions, such as allowing the financial industry to profit by convincing investors to bear risks they should not and allowing healthcare providers to profit from administration at the expense of the care and treatment of the sick. Other bad decisions include incarcerating 2 percent of the country’s young men and concluding that the US’ economic problems would be solved if only the rich could keep more of their money.
It is not difficult to see where the blame lies.
As Mark Kleiman of New York University’s Marron Institute says, the Republican Party’s rigid and die-hard ideological opposition to “taxing the rich [has] destroyed, on a practical level, the theoretical basis for believing that free trade benefits everyone.”
It is difficult to argue for redistributing the benefits of globalization when you believe that the market channels gains to those who deserve them. Nor can you ameliorate the painful effects of globalization if you believe that social-insurance programs turn their beneficiaries into lethargic “takers.”
It is not globalization, poor negotiation tactics, low-wage Mexicans workers or the overly clever Chinese that bear responsibility for what is ailing the US. The responsibility lies instead with politicians peddling ideology over practicality — and thus with the citizens who elect them, as well as those who do not bother to vote at all.
J. Bradford DeLong is a professor of economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.
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