- The Washington Times - Sunday, February 15, 2004

The political furor sparked by a senior White House adviser’s comments about the benefits of producing goods and services overseas is the latest chapter in the debate over global trade.

The flap was triggered when N. Gregory Mankiw, a prominent Harvard economist who chairs the White House Council of Economic Advisers, said last week Americans benefit economically when manufacturing and services can be performed less expensively abroad.

It’s an issue that could have a big impact in pivotal electoral states like Michigan and Pennsylvania, where manufacturing jobs have been hit hard and voters blame businesses who move their production centers abroad.

As Mr. Mankiw was releasing the CEA’s annual Economic Report of the President, which President Bush signed, Mr. Mankiw talked about “outsourcing” jobs, a sensitive subject the Democrats hope to turn into a political weapon against Mr. Bush’s economic policies. This “outsourcing,” he said last Monday, was just “the latest manifestation of the gains from trade” from which our economy benefits and that economists have long promoted.

“Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past and that’s a good thing,” he said.

Makes perfect sense to me. But Mr. Mankiw’s remarks drew condemnation from the Democrats, who pointed to job losses over the past three years and even from Republican leaders like House Speaker Dennis Hastert. In a release titled “Hastert disagrees with president’s economic adviser on outsourcing,” the speaker said Mr. Mankiw’s “theory fails a basic test of real economics. We can’t have a healthy economy unless we have more jobs” — a point the CEA report made eminently clear.

Mr. Mankiw, prodded by a worried White House, made a statement saying his offhand remarks were misinterpreted. “It is regrettable whenever anyone loses a job,” he said.

But, very much to his credit, he didn’t back down from his fundamental and irrefutable point that the global movement of goods and services is a very good thing for economic growth and for American pocketbooks.

The woefully unreported but central economic reality in the debate over free trade and the movement of some U.S. production facilities overseas is that it brings down the costs of goods and services we produce and sell. That makes us more competitive in the marketplace and, equally important, lowers the price for consumers here at home.

Unfortunately, economic reporting on the nightly news shows cast the overseas manufacturing issue as a zero sum game for America.

According to these too-often uninformed, politically tilted stories, jobs are being sent overseas and Americans are suffering as a result of a free market seeking out the best product at the lowest cost.

Yet, think for a minute. The biggest beneficiaries of overseas production are consumers at the lower end of the income scale — who pay less for kids’ sneakers, pajamas, corduroys, etc., and thus have more money left after to spend on other purchases.

Wal-Mart, the great American success story, and other big retailers are offering products at lower prices that ordinary Americans can afford. Many are made overseas under contract to U.S. firms.

Democrats may think campaigning against this business practice is a winning issue, and it is with certain voters. But the fact is that Americans freely vote each day for this choice with their dollars, one purchase at a time, even though many of these same shoppers will no doubt tell pollsters they don’t like manufacturers shipping jobs overseas.

Democrats such as Sen. Tom Daschle argue the U.S. should change its policies to stop outsourcing and they would impose regulations and tax changes to make such business practices less profitable.

Yet if their arguments held any water, economies would be far better in those countries where they have much tighter trade controls and business regulations than we have here. Most European economies still operate under tariffs tailored to protect their industries and impose rulemaking that prevents American companies from competing more aggressively there.

But compare the two economies. Unemployment last month fell to 5.6 percent here. In Europe, the jobless rate has long approached double-digit levels. Economic growth is running about 4 percent in the United States. Europe’s is not even half as much.

Gas prices are exorbitant on that Continent — twice what we pay — and Europeans pay much more for other goods than we, because of excessive regulations, sales taxes and trade tariffs.

As for job creation, Americans are not running to Europe to find jobs. Younger European professionals are coming here to find jobs and start businesses. The “brain drain” has been a continuing story in Europe for decades, and continues today.

The point is everyone benefits when free markets, not politicians or bureaucrats, decide how to allocate resources and do business and where consumers — in American economist Milton Friedman’s apt words — are “free to choose.”

In his annual report, Mr. Mankiw said “when a good or service is produced more cheaply abroad, it makes more sense to import it than make or provide it domestically.” Truer words were never spoken.

Donald Lambro is chief political correspondent for The Washington Times and is a nationally syndicated columnist.

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