Recently I had the opportunity to participate as a panelist in a conference sponsored by the Texas Lyceum Association to explore the “problems, issues, challenges, ventures, and goals that the state of Texas should be pursuing in the public sphere”. In a couple of hours, five of us and a moderator conducted a fairly spirited dialogue on our perspectives on the top priorities in this context. Of course, to no surprise, public education was at the top of everyone’s list, and in second place was a variety of lesser items. But here I want to address one area that was not fully laid out that I poorly attempted to introduce late in the session, one that represents a serious threat to our prosperity, and one that is largely external, at least in the sense in which Texas policymakers have very limited control over its impact on the state.
The threat I have in mind is the growing negative attitude toward free and open trade and the protectionist leanings that have become much too evident across the broad spectrum of public opinion. Here are some indicators: In a new Wall Street Journal/NBC poll, 53% said that free trade agreements have hurt the U. S., up from 46% in 2007 and 32% in 1999. Further, 86% named outsourcing as the major cause of the country’s continuing economic distress, and this sentiment was consistent across party lines, job classification (professional and blue collar), and income levels. No other factor was even close in the poll, and this outcome was strongest among managers and professionals at 95%! Even more instructive, the “Pledge to America” recently unveiled by House Republicans, supposedly the party of free trade, doesn’t even mention the subject, and in the WSJ poll 61% of those who self identify as Tea Party members said that trade agreements have hurt the U. S.
Given these numbers and the attitudes they reflect, there is little wonder why trade agreements with Korea, Columbia, and Panama are stalled and a dispute with Mexico over trucking deregulation remains unresolved. Nor is it surprising that the Democrats in both houses have proposed significant protectionist legislation–in the Senate a bill to use tax policy to penalize companies that outsource jobs and in the House a bill passed entitled the Currency Reform for Fair Trade Act that would mandate consideration of a foreign country’s currency interventions in determining unfair trade practices, a measure clearly targeting China. The fate of these proposals await the return of Congress in the lame duck session after election day, but both have bipartisan support, the message in them is clear and dangerous, and the atmosphere smacks of the days of the Smoot-Hawley tariff debacle of the early 1930’s.
Some of this hostility can be attributed to the very slow economic recovery and much of it is prompted by the fact that corporate America is sitting on the largest cash horde in history and is reluctant to invest in new ventures, new facilities, and the job creation that follows. Of course this reluctance and underlying uncertainty is understandable, but why is this the case? Again, no surprises, and several reasons readily come to mind:
*Our government pursues fiscal policy, including tax, spending, and regulatory policies, that is destructive to capital and drives it offshore where it is often treated much better.
*We have pursued our monetary policy as though America is alone in the world and has no responsibility as the steward of the world’s reserve currency, which must have stability in value above all other considerations.
*In trade policy, we seem to have forgotten that, despite those economists who believe it has been repealed, the Law of Comparative Advantage is still alive and well and that the American comparative advantage is the creativity, innovation, and skills of its people.
*Far too many in our education establishment are slow to recognize that this historic advantage is slipping away because of our interminable delay in drastically transforming our public education system and moving it into the 21st century.
*In spite of the lessons of recent economic history, neither political party seems to remember that economic growth trumps austerity-only as the best cure for economic distress and that supply side economic policies are the best drivers of growth.
Let’s hope these leading indicators are nothing more than election year temper tantrums, but if the election results do not produce a significant change in leadership and direction, we are in big trouble, and Texas, in spite of its clear advantages in people, policy, and spirit, cannot fully escape the threat.