Economic Illiteracy Is Not the Change We Need
October 29, 2008
Art Carden
Barack Obama is campaigning for president under the slogan “Change We Need.” Unfortunately, many of his economic policy proposals would move us in exactly the wrong direction. As of this writing it appears that Senator Obama will be the next president of the United States. We can move forward by looking at the implications of some of his economic policy proposals.
Consider first the issue of trade. One of the fundamental principles of economics is that there are gains from exchange. During the third presidential debate, Senator Obama said that he believes in free trade but then proposed a slate of caveats and provisos that would undermine the principles of free trade. On the surface, environmental protection and labor standards sound noble, but they actually harm the desperately poor by artificially raising the cost of employing them and effectively legislating them out of the international marketplace. Restrictions on trade provide a short-run windfall for unionized American workers—a powerful Obama constituency—but this windfall comes at the expense of other Americans who have to pay higher prices and at the expense of poor people around the world who are then barred from the market.
Senator Obama has also proposed trying “to fix NAFTA so that it works for American workers.” However, it isn’t clear how NAFTA currently works against American workers, and trying to renegotiate agreements with important trading partners sets a dangerous precedent. The United States risks alienating the international community and imperiling future progress toward free trade.
Second, Senator Obama wants to create millions of new jobs via various environmental schemes. It is important to remember, though, that there is no such thing as a free lunch. The resources to create all these jobs must come from somewhere, and if the government is to get the resources to create these jobs, they must redirect them from other lines of employment. Where government intervention is involved, jobs created in one sector are jobs destroyed in another.
Third, Senator Obama wishes to make it easier for workers to unionize. This will raise some incomes for some workers in the short run, but these increases come at the expense of lower wages for other workers, reductions in investment, and reductions in the international competitiveness of the firms that are unionized. The near-failures of the Detroit automakers illustrate how union-friendly policies allowed special interests to bleed producers dry. In the late twentieth century, the government sowed the seeds of financial and social prodigality. Today, we’re reaping what was sown.
Finally, Senator Obama proposes increasing the minimum wage. This runs counter to economic theory and mountains of evidence showing that minimum wages hurt exactly the people they are supposed to help. Minimum wages reduce the number of workers businesses wish to hire and legislate some of them out of the labor market. If we wish to truly help the poor, we should eliminate the minimum wage, not increase it.
Both Senator Obama and Senator McCain have offered numerous proposals that are almost audacious in their economic illiteracy. As president, Senator Obama would do well to reexamine the economics of the changes he is proposing. Especially in a turbulent economy, many of his proposals exemplify exactly the kind of change we don’t need.
Art Carden is an Adjunct Fellow at the Independent Institute in Oakland, California, and an assistant professor at Rhodes College (Department of Economics and Business).
