Moving into the 2012 election season, the Obama Administration is making a critical pivot in its political and economic narrative on trade and jobs. During his Midwest trip this summer, Obama extolled American workers as the most productive in the world, and talked about free trade treaties as the solution to the job problem. The implication was that nothing was wrong, and the return of jobs was only a matter of time.
But the White House has just issued a new report entitled “Investing in America: Building an Economy That Lasts” that tells a very different story. The new report starts by saying:
Over the past decade, real business investment in production capacity stagnated. Economic growth in the U.S. relied far too heavily on an unsustainable boom in residential and commercial real estate fueled by an unchecked financial sector. The bubble created by this boom distorted our economy and undercut the international competitiveness of our products and services. Companies increasingly chased low‐cost labor outside of the U.S., moving their manufacturing production, and some of their services, like call centers and software development, abroad.
The report points to the stagnation in business investment, the rising trade deficit, and falling manufacturing employment as real problems.
The dramatic decline in the level of manufacturing employment after 2000 signaled that something fundamental had change
This is an extremely important report, both politically and economically. Economically it points to trade as a major reason for job loss. In particular, it makes the point that the boom pushed up production costs above sustainable levels.
Politically, the report positions Obama in favor of taking effective steps to bring jobs back to the country. This is a much better stance to run against a Republican like Mitt Romney, since one way that private equity firms cut costs is by outsourcing production overseas.
To me, this report appears to reflect the influence of the new CEA head, Alan Krueger. Krueger, a labor economist, has a realistic idea of how trade has affected the U.S. labor market.
I would suggest that for its next step, the White House should support the idea of a Competitiveness Audit, which identifies the industries where insourcing makes sense, and points out places where more work needs to be done. This would be relatively cheap way of improving the speed of insourcing, and getting more jobs created here more quickly.