Free Trade Follies

Tuesday, July 15, 2008
Last week presidential candidate John McCain distanced himself from economic adviser Phil Gramm, after Gramm’s comments that America had become a “nation of whiners” and that the current concerns over a lagging economy amounted to a “mental recession” rather than any real phenomena.

The press and political reaction was swift and quizzical. What could Phil Gramm possibly mean? Why would an adviser to a presidential candidate publicly broadside the American electorate? As one editorial page wondered, “we can’t fathom the target of his ‘nation of whiners’ zinger.”

Sen. Obama himself seemed a bit (mockingly) incredulous. “Then he deemed the United States, and I quote, ‘A nation of whiners.’ Whoa,” Mr. Obama said. “A nation of whiners?” After his remarks were published, Gramm would later clarify that he was talking about “American leaders who whine instead of lead.”

But Obama’s reading of Gramm’s original remarks seem to be the most natural. “It isn’t whining to ask government to step in and give families some relief,” said Obama.

Well, maybe it is whining, but that’s precisely the sort of family-friendly rhetoric that makes Gramm’s remarks seem unduly harsh by comparison. But does it matter if there is truth to the substance of Gramm’s assertions? A day after Gramm’s statements appeared in the Washington Times, the Washington Post published an article highlighting the findings of a study that characterized the baby boomers as a generation of...“whiners.”

The study by the Pew Research Center found that
More than older or younger generations, boomers -- born from 1946 to 1964 -- worry that their income won’t keep up with rising costs of living. They say it’s harder to get ahead today than it was 10 years ago. They are more likely to say that their standard of living is lower than their folks’ but that things don’t look too good for their kids either (67 percent of younger generations, meanwhile, feel they have it better than their parents).

This despite the fact that boomers, dubbed here the “gloomiest” generation, have had it objectively better for a longer period of time than any other generation before or since. Anecdotally I had a “boomer” relative tell me the other day that the movie Cinderella Man resonated with her because it happened during a time of economic duress, the Great Depression, that so closely resembles the problems of today. Talk about a lack of correspondence between perception and historical reality!

The real problem with Gramm’s remarks was that they displayed a lack of connection to the perceptions of many Americans, even if his comments corresponded better with reality than many popular perceptions. Part of what makes a successful politician is the ability to understand and sympathize with his or her constituency, beyond the clarity of vision simply to see what the objective truth is. Gramm’s comments were more than just “bootstraps” rhetoric. Perhaps they were meant to be prophetic, in a way that gives people a kick in the rear and forces them to readjust their frame of reference.

And, again, the substance of the remarks didn’t differ much from what the “straight talking” McCain campaign has been saying all along. Last April McCain marched into Ohio, a part of the country hardest hit by globalization of industry, and said, “a person learns along the way that if you hold on -- if you don’t quit no matter what the odds -- sometimes life will surprise you. Sometimes you get a second chance, and opportunity turns back your way. And when it does, we are stronger and readier because of all that we had to overcome.” This sort of approach takes seriously the realities of both global trade and the plight of displaced workers.

So McCain’s dismissal of Gramm should be understood as having as more to do with rejecting the tone and style of Gramm’s message than the substance. McCain may have learned something from the resonance of Mike Huckabee’s message to blue collar evangelicals that trade needs to be “free and fair.” But for many economic conservatives, reactions to that message were as negative as reactions were to Gramm’s message. Free and fair? Free is fair, right? Maybe it is, but it doesn’t always seem to be so. And simply repeating “free is fair” isn’t going to work rhetorically.

The ideological inability of many economic conservatives to frame their message in a way that resonates with mainstream Americans is what is reflected in Phil Gramm’s comments and the corresponding rejection and derision of Mike Huckabee by many in the GOP (the positive reception of Gramm’s remarks among many economic conservatives underscores this). In politics, communicating the truth effectively is just as important as perceiving it. McCain might be on a steeper learning curve on that score than many of his fellow Republicans.
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A Single-State Recession

Tuesday, June 5, 2007
The number of jobs (nonfarm, not seasonally-adjusted) added to the US economy since 2004 numbers around 6 million.

But over the same period, Michigan has lost over 50,000 jobs. What’s going on?

A relative of mine recently described to me the situation from his perspective. His company has an office located in Michigan, and of the rather modest net profits accrued by the Michigan location, over 56% were paid to the state by means of the Single Business Tax (SBT).

The SBT has now been phased out going forward, but there’s been a huge partisan battle between Republicans in the state congress and Democratic Governor Jennifer Granholm about what to do. The debates are well-chronicled on the Democratic side by the ranking Democrat on the Senate Appropriations Committee, Senator Mickey Switalski (see, for instance, the Feb. 23, 2007 edition of his newsletter, The Insider).

It looks now like the new tax policy replacing the SBT will be “revenue neutral,” in large part because the state was already facing a $1 billion budget deficit before the SBT was to be phased out. Besides the punitive SBT, many blame the employment climate in Michigan on the state’s “heavily unionized culture.”

The “revenue neutral” nature of the new tax plan seems to indicate to me that businesses in Michigan can continue to expect big chunks of their profits going to the state’s coffers. And that can only mean that Michigan’s single-state recession will continue, even if the tax penalty for adding payroll is modified under the new plan.
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