Stick this in your ear, Lou Dobbs

If you want to stop manufacturing job losses in America, put the breaks on technological innovation, not on free trade. Also be prepared to see reductions in real wages, not gains. This is according to a new study from the Center for Trade Policy Studies at the Cato Institute called "Trading Up: How Expanding Trade has Delivered Better Jobs and Higher Living Standards for American Workers.” The key take-aways:

Trade has not caused a net loss of jobs in the U.S. economy, and accounts for only 3 percent of annual job displacement. Further, the study shows that “between 1997 and the first half of 2007, the U.S. labor market did in fact shed a net 3.3 million manufacturing jobs, but that has been overwhelmed by a net gain of 11.6 million jobs in sectors where the average wage is higher than in manufacturing.”

Critics claim that the “average real wage” has declined since the 1970s, but this study shows that the average real wage is a flawed measure. A more accurate measure of earnings is “real hourly compensation,” which takes into account not only wages but benefits. “In the decade since 1997, as the U.S. economy has become more globalized, real compensation per hour for American workers has risen by 22 percent.”

The study also finds that household income has been rising and middle-class families have been moving up the income ladder. The real median net worth of U.S. households has risen 31 percent in the past decade while the share of income needed to finance debt has remained stable. [emphasis mine]

In other words, increased trade has made our society better, not worse, richer, not poorer, and changed and grown economic opportunity, not shrunk it.

Protectionism is not "progressive." If you really want to be progressive, support free trade.

The real solution to outsourcing

I implore anyone of the mind that we are destroying our country and our future through out-sourcing, free trade, or mechanization of industries to read this blog post by Russ Roberts, economics professor at George Mason University. The super-abbreviated conclusion:

Preserving manufacturing jobs for their own sake is the road to stagnation.

The natural forces of competition and self-interest are encouraging manufacturing workers to get more education and find new work.

Russ really brings to life a lot of the benefits of outsourcing and trade. Yes, there are short-term pains, but those are exponentially off-set by the long-term gains - gains not just for the economy, but for Real People. (and Russ is one of the best in the business at connecting the abstract ideas of free-market thought to the lives of Real People)

How do we continue to grow the economy through free trade? First, let's agree that freer trade will lead to significant benefits for the next generation, and in many cases the current one after a number of years.

Second, let's be honest about the near-term challenges (and near-term could be months as easily as it could be years) such as job loses and shrinking towns, creatively exploring both temporary fixes like unemployment payments, continuing education grants as well as longer-term changes, such as moving away from defined benefit pensions and more towards ownership of our retirement through defined contribution plans.

Finally, let new industries grow organically while old ones fall away without intervention from government. If government tries to pick winners in the new economy or to save the losers by subsidizing their diminished existence, we are all the worse for it.

Boomerang Outsourcing

For those protectionists out there who still believe that the American economy is crumbling as we become more global and continue to ignore the fact that short-term trends (outsourcing) are not necessarily reflective of long-term realities (the opening of new industries in America coupled with lower prices for commodities), then here is an article that I would like you to read.

It would be easy to imagine Reno, Ohio, as the type of place that would be hit hardest by outsourcing - a small American town losing out to the invisible hand shifting jobs to places like Bangalore and Guangzhou. Instead, outsourcing is bringing the jobs to Reno. Across the street from an Army Reserve center and next to a farm, a customer-service call center hums, its 250 workers answering phones for online travel agency Expedia. The center's owner? Indian conglomerate Tata Group.

Many people see globalization, and the economy in general, as a fixed pie, where one person's gain is another's loss. Just as with the above example, though, we see that it's not a winner-take-all system. The pie grows larger, new jobs and industries come about, new opportunities and realities appear.

Being truly progressive means thinking towards progress and potential instead of arguing about current obstacles. Are candidates and lawmakers who want to impose new tariffs on China and close our borders and complain about globalization really "progressive" then?