25 August 2011

Pop Quiz

Q: Who said this:

Second, the idea that U.S. economic difficulties hinge crucially on our failures in international economic competition somewhat paradoxically makes those difficulties seem easier to solve.  The productivity of the average American worker is determined by a complex array of factors, most of them unreachable by any likely government policy.  So if you accept the reality that our “competitive” problem is really a domestic productivity problem pure and simple, you are unlikely to be optimistic about any dramatic turnaround.  But if you can convince yourself that the problem is really one of failures in international competition—that imports are pushing workers out of high-wage jobs, or subsidized foreign competition is driving the United States out of the high value-added sectors—then the answers to economic malaise may seem to you to involve simple things like subsidizing high technology and being tough on Japan.  [Emphasis added.]

A:  Paul Krugman (Pop Internationalism p. 16 [1996], The MIT Press, Cambridge).

In spite of his remarkable daily stupidity, Krugman actually correctly recognizes the problem of American competitiveness in international trade.  What hampers America is not foreign trade, but domestic productivity.  And one of the biggest hindrances to domestic productivity is government, both at the state and municipal level, and particularly at the federal level.  Thus, if one wants to know why Americans are losing manufacturing jobs, one need only look at domestic policy.  The federal government has increasingly hamstrung manufacturing jobs over the past several decades.

Furthermore, instead of allowing consumers to feel the pain that domestic production policy would naturally incur, the federal government instead decided to promote increased foreign trade (under, it should be noted, the auspices of so-called “free” trade).  This policy has then had the effect of subsidizing foreign production at the expense of domestic production because foreign manufacturers do not have to face the massive regulatory costs that domestic manufacturers face, giving foreign manufacturers a leg up on their competition.

As I have undoubtedly noted before, there are only two correct positions for a domestic government that presumably claims to represent the people over which it governs.  Either the government can highly regulate domestic business and place tariffs on imports that approximate the costs faced by domestic producers or the government can reduce the burden of regulation on domestic business in conjunction with the decreased cost of importing.  It is, however, quite foolish to do what the U.S. government is doing now:  highly regulate domestic business while decreasing the cost of importing.  Either a high degree of regulation is desirable or it is not.  If it is, whatever regulations that exist should be applied to every person and corporation that wishes to do business in America.  If it is not, the domestic market should be deregulated posthaste.  There is no excuse for the current state of affairs.

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