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Free Trade -- Killing The American Dream
[October 18, 2010]

Free Trade -- Killing The American Dream

Oct 15, 2010 (Basil & Spice - McClatchy-Tribune Information Services via COMTEX) -- Former Defense Secretary William Cohen reports in the 10/12/2010 Wall Street Journal "Obama and the Politics of Outsourcing" that "for every job outsourced to India and other foreign countries, nearly two new jobs were generated here in the U.S." This greatly simplifies rebuilding our economy -- outsourcing all our jobs will create more than full employment! Unfortunately however, this doesn't agree with my observations while driving trucks in Akron, Atlanta, Boston, Buffalo, Chicago, Cleveland, Denver, Dallas, Gary, Indianapolis, Los Angeles, Memphis, Milwaukee, New York City, Philadelphia, Phoenix, Portland, Or., Seattle, etc., I never saw or heard much evidence of the dramatic benefits that Mr. Cohen, now an outsourcing/Free Trade consultant and lobbyist with offices in China, suggests we have gained. Areas known to have suffered the most from outsourcing looked more like war zones than rebuilding economies, and there residents had no stories of economic revival either.

Loss of manufacturing jobs in the U.S. also negatively impacts supplier chains. In the case of domestic auto makers, the Bureau of Economic Analysis estimated each job directly supported 2.4 additional jobs in the economy through supply chain purchases. R&D and IT jobs also tend to follow manufacturing, to be 'close to the action.' Clearly Cohen's claims don't pass any common-sense tests. They also don't pass analytical scrutiny, either. Dr. Paul Craig Roberts, former Assistant Secretary of the Treasury, points out that if offshoring had the economic benefits that Cohen contends, there would be employment growth in export and import-competitive industries -- instead employment in these industries has declined in the U.S. (1) Cohen credits his conclusions to Professor Matthew Slaughter at Dartmouth who studied employment of foreign subsidiaries of U.S. multinationals between 1991-2001. Roberts, however, found Slaughters' data overstated for two reasons: 1) Many U.S. firms established foreign operations for the first time during the period of Slaughter's study, and their existing employment was inappropriately added to Slaughter's numbers for growth in multinational employees.

2) Multinationals acquired existing smaller firms at about 15 times the rate that they created new businesses, thus again grossly overstating the supposed creation of new jobs.

Finally, David Ricardo, the 1817 originator of the theory of comparative advantage that underlies the logic for free trade, made the critical assumption that "free trade would be limited because investors would not want to entrust their capital with a strange government and new laws." This is no longer true -- U.S. entities have invested about $3.2 trillion in China alone, and added another $340 billion in 2009.

Bottom-Line: The 'Cohen-Slaughter' theory on Free Trade should be filed and forgotten, along with alchemy, cold fusion, and perpetual motion machines. Reality is that Free Trade is killing the American dream 1) "Manufacturing & Technology News," 2/6/2007; Loyd E. Eskildson is retired from a life of computer programming, teaching economics and finance, education and health care administration, and cross-country truck driving. He's now a blogger and reviewer for Basil & Spice. Visit Loyd E. Eskildson's Writer's Page.

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