My husband says this drawing needs explanation: Counter-clockwise from the lady stick figure: Hillary, the Donald, Bernie Sanders, generic representation of other politicians.

We’re now at the end of March and contrary to near-universal expectations from a few months ago, Donald Trump and Bernie Sanders are still around and kicking. More than that, it seems almost certain that Trump will win the Republican nomination, if something drastic doesn’t happen. Bernie Sanders, though he likely won’t win the Democratic nomination, still has plenty of cash to spend and has won enough serious states (read: Minnesota, Michigan) to continue forcing Hillary to answer difficult questions.

How did we get here? I want to come back to something I touched on in a previous post – the one area that Trump and Sanders agree on [1], the giant green monster that wasn’t given its due in past elections about but has raised its ferocious head in this one, leading the establishment candidates to scurry: trade and its impact on US workers. 

Everyone has known about the rust belt and the leeching out of traditional manufacturing jobs from the US for a long time. But in the political arena, it appeared to be a heavily moderated force at best. Free trade was long a Republican issue, with Democrats traditionally tending to be more protectionist. However, free trade was eventually taken up and pushed forward by centrist Democrats, most notably NAFTA under Bill Clinton. (See this Heritage Foundation article on how Clinton’s NAFTA was the realization of Reagan’s dream). While the loss of manufacturing jobs was thoroughly bemoaned in the press, there was no political champion for the losers in the trade deals. At best, politicians tried to lure back jobs with tax breaks and the like but being anti-free trade seemed to become kind of a taboo position in both parties.

I particularly found this quote from that 1993 Heritage Foundation article interesting:

The trade pact, which will eliminate tariffs on goods and services between the United States, Canada, and Mexico over a fifteen-year time span, will create the world’s largest market: some 360 million people, with an economic output of more than $6 trillion a year. The NAFTA thus guarantees that American workers will remain the most competitive in the world and that American consumers will continue to have access to the world’s finest goods and services.

In economics classrooms all over the world, free trade was and continues to be unquestionably heralded. Lower tariffs allow countries to play to their comparative advantage. Everyone gains. Actually, everyone gains in the form of cheaper stuff but some fraction of the population may lose out because their jobs move to another country. Still, the overall gains in utility due to cheaper goods should greatly outweigh this loss in a subset of the population. In theory, policy makers should be able to capture a bit of that overall utility gain (maybe in the form of a small tax) and give it to those who lost out.

The US largely did experience the fall in prices of many goods (see this NYT article). And it also experienced a huge loss in manufacturing jobs – according to this Bloomberg article, factory jobs went from being 1 in every 4 job in the US in 1970 to 1 in every 10 jobs in 2010. Despite policymakers and academics having argued for decades that free trade is the better path for everyone, in the 2016 election debates, this is getting a hard second look. In hindsight, there were some clear problems with the free-trade-can-benefit-all approach:

Problem #1: Did the theoretical transfer to those who lost out in these trade deals ever happen? This was supposed to be the magical way that even the losers could come out winners in a free trade agreement. But does anyone know if this happened, and to what extent?

Problem #2: Workers aren’t that fungible and re-trainable. Economists like to think that workers, like goods, will go to where the demand is. If the buyers of labor want computer programmers rather than factory workers, then people will weigh the cost of retraining themselves against the benefit of having this new job and if the difference is positive, they will retrain themselves. It turns out that when you lay off a 50-year old guy with a high school degree who has worked in a factory for 30 years, it’s not so easy for him to retrain for a skilled factory job (involving things like programming machinery) let alone a software engineering office job.

Problem #3: A job is more than a means to buy things you need to live. It’s also an important part of many people’s identities, giving them a sense of purpose and community. Can cheaper electronics and clothing completely offset the loss of a job and livelihood? Does having more cheap stuff make poor families feel less poor, less out of step with the wealthy in this country?

A significant part of our current political upheaval is the ghosts of decisions past coming to haunt us. We passed many of these free trade pacts without enough debate on how it was going to impact different communities and a realistic plan on how to support those communities that would face accelerated transition because of them.

A few final notes: First, I want to clarify that I am not anti-free trade and I don’t place the blame on the loss of US manufacturing jobs solely on the free trade pacts. The benefits of freer trade are real, and in many ways, the free trade agreements only accelerated the gravitational pull of economics. My main point is that we did not fully appreciate and prepare for the fallout of these changes, and now they are coming back to bite us in the ass. Secondly, I want to point out that the progression of technology has and will continue to have analogous impact on labor, and we’re not having enough of a discussion on that either. Perhaps I will write another blog post in the future regarding my thoughts on this, but one of the big effects of this transition is an increase in returns to capital owners relative to the returns to labor owners (e.g., investors and managers relative to workers). Obviously, this will continue to increase inequality, which is at its post-Great Depression peak by some measures.[2] This is having, and will continue to have ground-shifting impact on US politics.

[1] Trump especially seems to be drawing on the segment of the population who have been most impacted by transitions in the economy – both from movement of jobs to other countries and the impact of technology. This NYT article shows that Trump supporters tend to be poorer white people with ‘old economy’ jobs.

[2] Indeed, according to this CBO study, middle and lower-tier workers are not earning less now than they were in 1979 – they earn a little more in fact. But the key takeaway is that the rise of earning for the top 90th percentile has skyrocketed, contributing to greater income inequality.