Wednesday, March 17, 2004

Job losses in an expanding economy

Commentary by ADAM TANOUS

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Whether the Bush tax cuts of 2001 were responsible for the current economic recovery, the $521 billion federal deficit, or both, will be argued for years.

The predicament the president faces and will face over the course of what promises to be an interminable election season has more to do with jobs than how the dampening effects of a big deficit balance out with an expanding economy.

Despite the president’s initial campaign advertising focus on national defense and his leadership after the attacks of Sept. 11, I think the crux of the election battle will hinge on economics, as it usually does. The 5 to 15 percent of voters—considered the swing voters—will determine the winner in November. And it’s no secret that when the voters are ambivalent about their votes, they fall back on what is most important to them—jobs and economic security.

He who is likely to improve a voter’s immediate economic climate gets the vote.

This would all be moot if the U.S. did not have the growing population that it does. Job growth has to keep up with population growth, otherwise the unemployment rate increases. Many economists believe that the economy must generate 150,000 new jobs every month to keep pace with population growth. Since August 2003, approximately 61,000 jobs per month have been added. That disparity has been a source of tension within the electorate, but one that doesn’t seem to be hurting the economy as a whole.

In fact, the disparity has developed despite the economic expansion of the last eight months—approximately 6 percent annually as measured by the production of goods and services.

How can we produce more without the commensurate addition of workers?

Our productivity has to be improving, which is, ultimately, great news. We are producing more because workers are being more efficient, either through mechanization or through the practice everyone loves to hate, "outsourcing." It could be too that new entrepreneurs in the market—who are officially invisible to the labor statistics for a year—are producing significant amounts to the gross domestic product.

Consider a recent story in the Washington Post that reported AT&T will cut its workforce by 8 percent over the next year. The reason cited was "increased mechanization." If a machine can route phone calls more efficiently, or for automakers weld a car door more safely, shouldn’t we exploit that? We should if we’re interested in succeeding in the free market.

Outsourcing is another version of the market finding the most efficient path to an end product. I have a friend who is a tech stock analyst. At the end of his workday he gets on the computer with somebody in India and gives him a bunch of work—number crunching and such—to do during the Indian workday. In the morning my friend has all of the information he needs on his computer. It is a remarkably efficient system, and, no doubt, helps my friend’s company compete in the marketplace.

What is bad about outsourcing? The argument is that it takes jobs away from Americans. That’s true, but if we truly have faith in markets, then we should let that job move around until it finds the lowest wage to fill it, provided, of course, that the quality of the product or service is comparable. Ultimately, companies that do this grow, continue to be profitable and hire more people. The alternative is to artificially subsidize those jobs through protectionism—a policy doomed to fail in the long run.

What is curious and, and perhaps ironic, about the current economic situation is that neither President Bush nor Sen. Kerry can really capitalize on it. The president is in the awkward position of apologizing for job losses, while at the same time knowing in the long run higher productivity—greater output per man or woman hour—is exactly what a free market is destined to find. He must acknowledge and sympathize with those out of work knowing that displacements in a growing and fluid economy are an ugly fact of life.

When outsourcing and mechanization continues in a given labor sector it is a sure sign workers are in jobs doomed to disappear. Ideally, they should move to where the labor demand is. The unfortunate reality is the supply and demand flows of the economy move faster than workers can retrain themselves. Many get caught in the transition. In those situations, the government does need to play a role and help those workers develop skills the economy needs.

For his part, Kerry can rail about the loss of jobs, but trying to protect jobs through tariffs or rolling back NAFTA will backfire. He has said he wants to put all trade agreements on hold for 120 days. Motivated by the prospect of the iron belt electoral votes, Bush tried to do as much by imposing steel tariffs on foreign steel two years ago. In December 2003 Bush backed off the tariffs as the European Union was set to retaliate with even greater tariffs.

Of course, both the president and Sen. Kerry will attack each other for the stagnant job growth we’re experiencing. The fact is the situation is a byproduct of living with global markets. And as much heartache as it may cause in the short term, a global economy is here to stay, which, ultimately, benefits everyone.

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